Duration and Fisher's Rate of Return over Cost

Abstract

This paper seeks to explain why the net present value profiles of investment projects may intersect with changes in the interest rate. Previous explanations have pointed to differences in the timing of the projects' cash flows. However, the timing of a project's cash flows has not been defined in the literature and the relative timing of projects' cash flows typically is illustrated by a simplistic example. We make use of the projects' durations to specify timing differences and provide a more explicit analysis of the role of timing differences in the intersection of present value profiles of projects.