Irreversible Investment Under Interest Rate Variability: New Results

Topics:
Valuation
Tags:
Bank Of Finland,
Finance,
Financial Planning,
Financial Services,
Interest Rate,
Investment,
Variability
Source:
Bank of Finland

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Overview: This paper studies the impact of interest rate and revenue variability on the decision to carry out an irreversible investment project. Given the generality of the considered valuation problem, it first provides a thorough mathematical characterization of the problem and develops some new results. Contrary to what previous literature has suggested it establishes that interest rate variability may have a profound decelerating or accelerating impact on investment demand depending on whether the current interest rate is below or above the long run steady state interest rate.

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Format: PDF | Size: 537KB | Date: Dec 2003 | Pages: 32

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