compounding and discounting

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  • Time value of money
    • DISCOUNTING - Pv: value at the beginning
      • For a given interest rate (discount rate) – the longer the time period, the lower the present value
      • For a given time period – the higher the interest rate (discount rate), the smaller the present value
    • COMPOUNDING - FV: value at a later date
      • Simple interest : r*t
      • Compound interest - The extra comes from the interest earned on the first interest payment: (1+r)^t


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