In Duration Analysis, the Times at Which Cash Flows Are

question 29

True/False

In duration analysis, the times at which cash flows are received are weighted by the relative importance in present value terms of the cash flows arriving at each point in time.

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Definitions:

Compounded Continuously

Compounded continuously refers to the mathematical limit that compound interest can reach if it is calculated and added to the principal balance continuously, leading to exponential growth.

Future Value

A prediction of what a current asset will be worth at a particular future date, using an assumed growth rate.

Discount Rate

The discount rate, in finance, is the interest rate used to determine the present value of future cash flows, influencing the attractiveness of investments.

Perpetuity

A financial instrument that provides a stream of indefinite cash flows, or payments, with no end date.