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Define Purchasing Power Parity (PPP) and Explain Why It Is

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Essay

Define purchasing power parity (PPP) and explain why it is a useful tool.


Definitions:

Payback Technique

A method of investment appraisal that calculates the time required to recoup the cost of an investment.

Internal Rate of Return

A financial metric used to evaluate the profitability of an investment, representing the interest rate at which the net present value of costs and benefits of the investment are equal.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.

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