presentValue: Present value of a series of cash flows

Description

This function evaluates the present values of a series of cash flows, given occurrence time. Probabilities of occurrence can also be taken into account.

Usage

presentValue(cashFlows, timeIds, interestRates, probabilities, power = 1)

Value

A numeric scalar representing the present value of the cash flow vector, or the actuarial present value if probabilities are provided.

Arguments

cashFlows: Numeric vector of cash flows. Must be coherent with timeIds.
timeIds: Numeric vector of time points where cashFlows are due.
interestRates: A single numeric interest rate or a numeric vector of the same length as timeIds used to discount cash flows.
probabilities: Optional numeric vector of occurrence probabilities. If missing, a vector of ones (certainty) is assumed.
power: Numeric power applied to discount and cash flows. Defaults to 1.

Author

Giorgio A. Spedicato

Details

Present value of a series of cash flows.

Evaluate the present value (or actuarial present value when probabilities are provided) of a vector of cash flows occurring at given time instants and discounted by provided interest rates.

probabilities is optional; when omitted a sequence of 1's with the same length as timeIds is assumed. Interest rate may be a fixed number or a vector of the same size as timeIds. The power parameter is normally unused except in specialised actuarial evaluations.

References

Broverman, S.A., Mathematics of Investment and Credit (Fourth Edition), 2008, ACTEX Publications.

Examples

Run this code

# simple example
cf <- c(10,10,10)    # $10 payments one per year for three years
t  <- c(1,2,3)       # years
p  <- c(1,1,1)       # payments certainty
presentValue(cashFlows = cf, timeIds = t, interestRates = 0.03, probabilities = p)

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