Question

Corporate Finance;

Describe some practical applications of using present or future value calculations. Where do current interest rate levels sit against the historical norm? What factors have contributed to having interest rates at current levels?

Answer 1

Present values are often used by various individuals in determination of the purchase of various assets and it is also used by the businesses in order to purchase of various fixed assets and they will be comparing the benefits which will be accruing to them and they will be deciding accordingly.

Application of the future value can also be determined by individuals in calculation of the systematic investment plan and other investment which has a payment related to future.

Current interest rate is very low than the historical because it is almost in the zero zones as there is a risk related to recession whereas historical norms suggest at higher interest rates.

Current interest rate is significantly lower due to risk of an impending recession and lower estimation of the growth and higher unemployment along with poor manufacturing data.