9.4. Cash Flow Diagrams

To this point, only an investment made at a single point in time at a known interest rate has been considered, and it was shown how to evaluate the future value of this investment. More complicated transactions involve several investments and/or payments of differing amounts made at different times. For more complicated investment schemes, careful track must be kept of the amount and time of each transaction. An effective way to track these transactions is to utilize a cash flow diagram, or CFD. Such a diagram offers a visual representation of each investment. Figure 9.2 is the cash flow diagram for Example 9.10, which is used to introduce the basic elements of the discrete CFD.

Figure 9.2. An Example of a Representative Discrete Cash Flow Diagram (CFD)