Calculating the Present Value of An Asset's Future Cash Flows / Stephen D. Nadauld.

By:

Nadauld, Stephen D

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0268.Publication details: Cambridge, Mass. National Bureau of Economic Research 1978.Description: 1 online resource: illustrations (black and white)Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: This paper describes both the theory and a computer program designed to calculate the present value of an asset's uncertain future cash flows. In this model expected flows may vary in each of "t" future periods. Flows are adjusted to a certainty equivalent by a correction factor derived from a covariance matrix of the flows and market returns. The flows are discounted by a full specification of the term structure of the risk-free interest rate. The specific model illustrated in the paper is that of expected cash flows from a mortgage portfolio. The computer program calculates the expected cash flow, the uncertainty correction, and the term structure of interest rates. Algorithms to solve for each of these factors are included. Alternatively, options are included to input the factors from exogenous forecasts or projections. In addition to calculating the present values under each specification for the factors, the program compares the present values derived from each particular specification.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0268 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

July 1978.

This paper describes both the theory and a computer program designed to calculate the present value of an asset's uncertain future cash flows. In this model expected flows may vary in each of "t" future periods. Flows are adjusted to a certainty equivalent by a correction factor derived from a covariance matrix of the flows and market returns. The flows are discounted by a full specification of the term structure of the risk-free interest rate. The specific model illustrated in the paper is that of expected cash flows from a mortgage portfolio. The computer program calculates the expected cash flow, the uncertainty correction, and the term structure of interest rates. Algorithms to solve for each of these factors are included. Alternatively, options are included to input the factors from exogenous forecasts or projections. In addition to calculating the present values under each specification for the factors, the program compares the present values derived from each particular specification.