Discounting is the method of finding a cash flow's present value. It is important to note that if given the future value of a security and its rate of return, you can find its present value. If you are given the present value of a security and its rate of return, you can find its future value.
therefore, discounting is the reverse of compounding and can be calculated by rearranging the future value equation for a cash flow to solve for the security's present value.
The present value from of the time value of money equation is a rearrangement of the future value from the time value money 
In this equation, PV stands for present value, I represent the cash flow's interest rate, n stands for the number of years interest is compounded, and FVN represents the future value over n years.
No comments:
Post a Comment