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Decreases the money supply
The discounting principle in managerial economic is the opposite of compounding. It is based on the present value of a sum of money you are getting in the future, the discount rate and the frequency.
When the coupon rate (the contractual periodical "interest" payments) are lower than the yield (the market required return) the bond will be in discount. This discount makes up for the low value of the coupons.
To calculate present value of the bond you also need to know market interest rate. If , for example these companies were issuing their bonds in the different time and market interest rate was different then bond could be sold at premium(the bond will cost more then its face value), par (same as face value), and discount (bond will cost less then face value.)
decrease
As, the present value of future cash flows is determined by the discount rate, so increase or decrease in the discount rate will affect the present value. Discount rate is simply cost or the expense to the company,so in simplest terms, discount rate goes up, cost goes up,so this will lower the present value of cash flows. Assumes a discount rate of 5%,to discount $100 in one years time: Present Value=$100 * 1/(1.05) =$95.24 Ok,as you say,if the discount rate becomes higher,let's say 8%: Present Value=$100 * 1/(1.08) =$92.6 so, the higher the discount rate, the lower the present value.
the net present value as determined by normal discount rate is 10%
yes they are the same
What is the present value of 500 to be recieved 10 yrs from today if it is discount at the rate of 6 percent?
The higher the discount rate, the more time value of money we are tacking out of original amount from the future value
The four pieces to an annuity present value are: Present value(PV), Cashflow (C), Discount rate (r) and the life of the annuity (t)
highest
Decreases.... The formula is PV = $1 / (1 + r)t PV = Present Value r = discount rate Because 1/r continues to get smaller as r increases, thus resulting in an exponentially smaller Present Value.
Discount factor is the factor determining future cash flow, but multiplying the cash flow to obtain present value. Discount rate is used in calculations to equal the cost of capital.
The future amount itself and a discount rate.
daily
because the rate of discount is being increased therefore the original amount lets say $500 no longer remains the same nor does it raise or stay the same.