5.3 Discounting and Present Value
So far we have been moving money forward in time; that is, we have taken a known present value of money and determined how much it will be worth at some point in the future. Financial decisions often require calculating the future value of an investment made today. However, there are many instances where we want to look at the reverse question: What is the value today of a sum of money to be received in the future? To answer this question, we now turn our attention to the analysis of present value—the value today of a future cash flow—and the process of discounting, determining the present value of an expected future cash flow.
The Mechanics of Discounting Future Cash Flows
Discounting is actually the reverse ...
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