Explore the amount $1 is discounted for different compound interest rates across time. The graph shows the discounted value of $1 over time. Move the slider to change the compound interest rate and observe how the curve for the present value of $1 changes. The red dotted cursor lines show the present value of $1 at a specific time period in the future. Drag on the graph to select different time periods. \large PV_{N} = \frac {1} {FV_{N}} = \frac{1}{(1 + I)^{N}}= \frac{1}{(1 + 0.050)^{3.0}} = \frac{1}{1.16} = \$0.86 1. What is the present value of $1 due in 3 years when the discount interest rate is 10%? $1.33
Discounting
Conceptual Overview: Explore the amount $1 is discounted for different compound interest rates across time.
The graph shows the discounted value of $1 over time. Move the slider to change the compound interest rate and observe how the curve for the present value of $1 changes. The red dotted cursor lines show the present value of $1 at a specific time period in the future. Drag on the graph to select different time periods.
1. What is the present value of $1 due in 3 years when the discount interest rate is 10%?
- $1.33
- $1.00
- $0.75
- $0.10
2. How much is each $1 due in 14 years at a discount rate of 5% worth today?
- $0.86
- $0.51
- $1.98
- $1.00
3. Bond Long will pay $1 in 20 years with a discount interest rate of 5% and Bond Short will pay $1 in 5 years with a discount interest rate of 10%. Which bond has the higher present value?
- Long greater than Short
- Short greater than Long
- Long and Short have same present value
- Not enough information to determine
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