Week 3 DQ 2
Is a dollar worth more today than tomorrow? Why or why not? What is the relationship
between present and future value? Why do factors in the present value table never reach
Strictly speaking, the answer to this question I would think, would depend on the market.
But since you are no doubt talking about present and future value, I would have to say that a
dollar is worth more tomorrow than today. This is because with future value your money
earns interest as time goes on, and with present value you are determining how much money
you would have to invest today to reach a certain amount in the future (discounting cash
flows). Future value is defined as " the value at a given future ate of a present amount placed
on deposit today and earning interest at a specified rate. Found by applying compound
interest over a specified period of time" (Gitman, 2006, p. 141). Present value is defined as
"The current dollar value of a future amount - the amount of money that would have to be
invested today at a given interest rate over a specified period to equal the future amount"
(Gitman, 2006, p. 145). The two are basically opposites, as future value uses compounding
interest to get to a future amount and present value, discounting is used to arrive at the
present value of the future amount. The factors in the present value table never reach 1.0