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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

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

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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.

\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. $1.33
  2. $1.00
  3. $0.75
  4. $0.10

 


2.  How much is each $1 due in 14 years at a discount rate of 5% worth today?

  1. $0.86
  2. $0.51
  3. $1.98
  4. $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?

  1. Long greater than Short
  2. Short greater than Long
  3. Long and Short have same present value
  4. Not enough information to determine

 

Update 1 Ch 05: Exploring Finance Visualizations Discounting Q Search this course 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 dolted cursor times show the present value of $1 at a specific time period in the future. Drag on the graph to select different time periods ols PVN FV %3D (1+7 (1+0.050) $0.86 1.16 A-Z Present Value of $1 0.86 0.8 0.6 0.4 0.2 00 4. 6. 10 12 14 16 18 20 Periods %Int%3D5 0. 10 20 Created by Gary H. McClelland, Professor Emeritus Unnversity of Colorado Boulder Cengage Learming. All Rights Reserved. 2:41 PM
Transcribed Image Text:Update 1 Ch 05: Exploring Finance Visualizations Discounting Q Search this course 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 dolted cursor times show the present value of $1 at a specific time period in the future. Drag on the graph to select different time periods ols PVN FV %3D (1+7 (1+0.050) $0.86 1.16 A-Z Present Value of $1 0.86 0.8 0.6 0.4 0.2 00 4. 6. 10 12 14 16 18 20 Periods %Int%3D5 0. 10 20 Created by Gary H. McClelland, Professor Emeritus Unnversity of Colorado Boulder Cengage Learming. All Rights Reserved. 2:41 PM
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