Introduction to Valuation: The Time Value of Money - More about Present and Future Values
3 important questions on Introduction to Valuation: The Time Value of Money - More about Present and Future Values
Explain the difference between Present and Future value:
What we called the present value factor is just the reciprocal of (that is, 1 divided by) the future value factor:
In fact, the easy way to calculate a present value factor on many calculators is to first calculate the future value factor and then press the ‘1/x’ key to flip it over.
In fact, the easy way to calculate a present value factor on many calculators is to first calculate the future value factor and then press the ‘1/x’ key to flip it over.
What is the Basic present value equation?
There are only four parts to this equation:
the present value (PV),
the future value (FVt ),
the discount rate (r),
investment (t).
Given any three of these, we can always find the fourth.
the present value (PV),
the future value (FVt ),
the discount rate (r),
investment (t).
Given any three of these, we can always find the fourth.
Name 2 tricky things about the excell calculation:
First, the spreadsheet requires that the rate be entered as a decimal.
Second, you have to put a negative sign on either the present value or the future value to solve for the rate or the number of periods. For the same reason, if you solve for a present value, the answer will have a negative sign unless you input a negative future value. The same is true when you compute a future value.
Second, you have to put a negative sign on either the present value or the future value to solve for the rate or the number of periods. For the same reason, if you solve for a present value, the answer will have a negative sign unless you input a negative future value. The same is true when you compute a future value.
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