7: Cash Flow Calculations
93
$200
$100
$300
$200
$0
$ _ 50
$250
$125
Time
periods
Money received is a
positive number
Money paid out
is a negative
number
1
2
3
4
5
6
7
8
Figure 7-1. Cash Flows (Ungrouped)
The horizontal timeline is divided into equal compounding periods. The
vertical lines represent the cash flows. For money received, the line
points up (positive); for money paid out, the line points down (negative).
In this case, the investor has invested $700. This investment has
generated a series of cash flows, starting at the end of the first period.
Notice that there is no cash flow (a cash flow of zero) for period five,
and that the investor
pays
a small amount in period six.
!
Grouped cash flows.
These occur in a series containing “groups” of
equal, consecutive flows. Consecutive, equal cash flows are called
grouped cash flows.
The series shown here is grouped into two sets of
consecutive, equal cash flows:
