Question

Plot by hand the relationship between the present value of a $100 payment 10 years in the future, as a function of discount rate.

Answer 1

The higher the discount rate the lower the present value (PV) will be. Hence an invesre relationship exists between PV and discount rate.

The formula is: PV = FV/(1+r)^n. In this formula FV = $100 and n = 10.

Using different discount rates we get the following data:

r	PV
0%	100
5%	61.39133
15%	24.71847
20%	16.15056
25%	10.73742

Now the above data can be used to plot the graph. The r will be shown on the x axis (as it is the independent variable) and PV will be shown in the y axis (as it is the dependent variable)

The graph is shown in the attached image below. You can copy the same graph and plot it by hand.