Summary
When the interest rate is not 0%—and it rarely, if ever, is—comparing one cash-flow stream to another is much more difficult than just adding up the cash-flow instances in each stream and comparing the sum.
The interest formulas in Chapter 5 are essentially statements of “simple equivalence”: An amount of money in one time frame can be converted into an equivalent amount of money in a different time frame. When there is more than one cash-flow instance in a cash-flow stream, finding equivalence is more complex. Each separate cash-flow instance needs to be converted into a common time frame.
If a cash-flow stream spans different interest rate time periods, the conversion is even more complex because you need to account for the different ...
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