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Year

In the figure, 0 refers to right now. A cash flow that occurs at time 0 is therefore already in present value terms and does not need to be adjusted for time value. A distinction must be made here between a period of time and a point in time. The portion of the time line between 0 and 1 refers to period 1, which, in this example, is the first year. The cash flow that occurs at the point in time "1" refers to the cash flow that occurs at the end of period 1. Finally, the discount rate, which is 10% in this example, is specified for each period on the time line and may be different for each period. Had the cash flows been at the beginning of each year instead of at the end of each year, the time line would have been redrawn as it appears in Figure 2.

Figure 2: A Time Line for Cash Flows: $ 100 in Cash Received at the Beginning of Each Year for Next 4 years

Lessons From The Intelligent Investor

Lessons From The Intelligent Investor

If you're like a lot of people watching the recession unfold, you have likely started to look at your finances under a microscope. Perhaps you have started saving the annual savings rate by people has started to recover a bit.

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