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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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Future Value (FV), Present Value (PV), Rate of Discount and Discount Factor

Definition

The future value of an amount of money is the amount which can be achieved at a given date in the future by investing (or borrowing) the money at a given interest rate, assuming compound re-investment (or re-funding) of any interest payments received (or paid) before the end.

The present value (PV) of a future cashflow is the amount of money which needs to be invested (or borrowed) now at a given interest rate in order to achieve exactly that cashflow in the future, assuming compound re-investment (or re-funding) of any interest payments received (or paid) before the end.

A rate of discount is the interest rate which has been chosen for calculating a present ...

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