(Almost) crystal ball: Monte Carlo simulation

Although net present value (NPV) rocks, it is hard to believe that any financial metric representing the future outcome of an investment correctly describes what will REALLY happen. After all, cash flows that are inputs into the NPV analysis are forecasts and forecasts are never accurate. In lieu of a good crystal ball, you can [...]

Why NPV rocks


A safe dollar is worth more than a risky one

This is the second basic principle of finance. Future cash flows are not certain. However, some are more certain than others. You can be more certain of future values of government securities, for example, than of the future values of the stock market.

Different investments have also different levels of uncertainty or risk. The concept of [...]

Time value of money
