Decomposition

Decomposition is simply a procedure that you are used to using under different circumstances. It represents taking a complex problem, disassembling it into simpler parts that can be solved and then reassembling those solutions to find the solution to the larger, more complex, problem.

In cash flows, decomposition can be thought of as separately modeling separates parts of a problem, for example a loan payment and a cost of living adjustment to wages, analyzing them and then combining the results.

Worked example with a lot of decomposition and time shifting.

NEXT: Time Shifting

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