Money Concepts 350 Words.docx

# Money Concepts 350 Words.docx - Provide two examples of the...

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Provide two examples of the use of present value techniques in accounting. Present value or PV is basically the actual current value of money or sum of cash flow, which gives a specific return of the rate. Basically future cash flow is being discounted at different rates, that are lower discount rate and higher discount rate, then the lower discount rate will be the present value of that future cash flow. OS by this, we can now say present value is also known by discounted value. But the thing is to determine the appropriate discount rate for proper valuing the cash flows, is the key that plays important role in the present value. Example 1 : Calculating Present value for saving account. Let’s for example assume that you want to save money now, to your account in order to get sure that your child will have enough amount of money after 10 years to buy his own home. Assume that wo want to give \$100,000 to your child in 10 years from now onwards. As you have already know that you will get 5% interest per year on your account in these 10 years. Now how much money you should deposit in your account so that you will get the desired amount in future.

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