Question

what does present value really tell us ? if the discount rate is
higher why would the pv be lower ?

Answer #1

Solution

Present value is the current value as on date of future cashflow or straem of cashflows at a given discount rate or required rate of return.Basically the present value takes into account the value of money ,had the money ben invested at the discount rate of rate of return.Thus present value teels us as to how much money is needed today to earn a specific future sum

Formula for present value=Future cashflow/(1+r)^n

where

r-discount rate

n-number of periods

Thus as it can be seen from the formula,as the discount rate increases,the present value decreases.Thiss means that when the required rate of return is more the present value for a future sum will be lesser.

(T/F) The higher the discount rate or interest rate the lower
my PV (Present Value)
(T/F) The further out I receive a FV, the higher the PV
(T/F) The more time I have to invest the lower my FV (future
value)
(T/F) The higher the interest rate the higher the FV
(T/F) The more money I invest the higher FV
What is the FV of $50,000 invested today in 9 years if I can
earn 5%?
What is the FV...

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