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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › McCauley Duration
Dear Sir
What is the point if the cost of the investment is not taken into account, what are you paying back????
It is taken in to account – the market value is the PV of the future cash flows, as always.
Of course, but my point is that those future cash flows could be less than the cost of the investment. At least with NPV you deduct the investment, with McCauley you ignore the negative costs
But the PV of the future cash flows must equal the cost. The market value is always the PV of the future cash flows.