We examined two important topics in finance this week: (a) present and future va

Question

We examined two important topics in finance this week: (a) present and future values and (b) security valuation.

Critically reflect on the importance of present and future values. What factors must be considered when calculating present and future values? What other qualitative factors play into present and future value decisions? Perhaps you have opportunities in your professional life to use present and future values. What are some real or potential applications of these concepts?

We also looked at expected returns. Why do bond values go down when interest rates go up? Is this true in the opposite direction?

Explanation / Answer

Factors considered while calculating present value and future value is the discount rate and the time period . If the disount rate is high then the present value will be low and if the disount rate is low low then the present value will be high . Relevance of the present value is considered while determining the wortth of the project and calculating the value of the future benefits as on today . Future value is considered while making investmenrt what will be the return that we will get after a period of time if investing the same at a specific rate of interest .

Bond value goes down when the interest rate goes up beacuse the return gets increased and the discount rate i.e expected return also goes up time period remaining constant

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