46 rate15n5iy15fv500 cptpv24858 discountrate

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Unformatted text preview: = ­10,000 Present Value – Important Present Value – Important Relationship I For a given interest rate – the longer the time period, the lower the present value What is the present value of \$500 to be received in 5 years? 10 years? The discount rate is 10% 5 years: N = 5; I/Y = 10; FV = 500 CPT PV = ­310.46 10 years: N = 10; I/Y = 10; FV = 500 CPT PV = ­192.77 Present Value – Important Present Value – Important Relationship II For a given time period – the higher the interest rate, the smaller the present value What is the present value of \$500 received in 5 years if the interest rate is 10%? 15%? Rate = 10%: N = 5; I/Y = 10; FV = 500 CPT PV = ­310.46 Rate = 15%; N = 5; I/Y = 15; FV = 500 CPT PV = ­248.58 Discount Rate Discount Rate Often we will want to know what the implied interest rate is in an investment Discount Rate – Example 1 Discount Rate – Example 1 You are looking at an investment that will pay \$1200 in 5 years if you invest \$1000 today. What is the implied rate of interest? Calculator – the sign convention matters!!! N = 5 PV = ­10...
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