Abstract
We discuss several known formulas that use the Macaulay duration and convexity of commonly used cash flow streams to approximate their net present value, and compare them with a new approximation formula that involves hyperbolic functions. Our objective is to assess the reliability of each approximation formula under different scenarios. The results in this note should be of interest to actuarial candidates and educators as well as analysts working in all areas of actuarial practice.
Subject
Strategy and Management,Economics, Econometrics and Finance (miscellaneous),Accounting
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