Chapter 4.3, Problem 4.3BCQ

Summary Introduction

To discuss: The Rule of 72.

Introduction:

Present value refers to the current worth of the future cash inflows after discounting with a discount rate. The present value helps to understand the amount that needs to be invested at present to obtain a predetermined amount of future cash flow. The basic present value equation is as follows:

$\text{PV}=\frac{\text{FV}}{{\left(1+r\right)}^t}$

Where,

“PV” refers to the present value of future cash flow

“FV” refers to the cash flow

“r” refers to the discount rate

“t” refers to the number of years or periods of investment