Question

Class, as it relates to business and investment decisions, what is the difference between the present value and future value of money? And what is the meaning of a discounted rate?

Answer 1

Present value means that it is the value of all such future cash inflows and outflows at the present using a discounting rate.

Future value means that future value of the present flows at a compounding rate.

while calculation of the present value interest rate and discounting rate both are to be considered but while calculation of future value only interest is to be considered.

Fotr present value the inflation is to be considered but for the future value the inflation is not to be considered.

Present value is that amount which is required to be obtained from future value, where as future value is to be obtained from cash in hands.

Discounted rate means that it is the rate at which cash flows of the future would be discounted at the present, because it would be discounted for inflation and other reduction in its value.