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Unformatted text preview: ould I have to deposit today into an account paying 7 percent annual interest in order to accumulate $3,000 at the end of 5 years? Present
value is 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. Present value depends largely on the investment opportunities and the point in time at which the amount is to be received. This section
explores the present value of a single amount. The Concept of Present Value
discounting cash flows
The process of finding present
values; the inverse of compounding interest. The process of finding present values is often referred to as discounting cash
flows. It is concerned with answering the following question: “If I can earn i
percent on my money, what is the most I would be willing to pay now for an
opportunity to receive FVn dollars n periods from today?”
This process is actually the inverse of compounding interest. Instead of findi...
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