Stochastic Cash Flow Formulae Under Conditions of Inflation

ABSTRACT

This paper presents time-dependent deterministic and stochastic variations of common discounted cash flow formulae with explicit consideration given to inflation. The cash flows, the rates of discount or of compounding, and the rate of inflation are allowed to vary with time in a deterministic as well as random fashion in equations for the Compound Amount of a Single Payment, Present Worth of a Single Payment, Amount of an Annuity, Periodic Deposits to Accumulate a Future Amount, Present Worth of an Annuity, Capital Recovery, and the Present Worth of a Deferred Annuity.