My question is this: You expect to receive a payment of $600 one year from now. The discount rate is 6% What is the present value of the payment to be received? Suppose the discount rate was 7?, what is the present value of the payment to be received. What will cause the present value of a future payment to decline?
This is what I did but it doesn’t seem correct.PVF = 1/(1 + r)^n
PV = P x PVF = P x 1/(1 + r)^n
Monthly discount rate
Monthly r = 6%/12= 0.005%, n=12
PV = P x PVF = 600 x 1/(1 + 0.005)^12 = 545.14
Present value = $4.62 if PV=P x PVF=600 x 1/(1 + 0.5)^12
PVF = 1/(1 + r)^n
PV = P x PVF = P x 1/(1 + r)^n
Monthly discount rate
Monthly r = 7%/12= 0.006%, n=12
PV = P x PVF = 600 x 1/(1 + 0.6)^12 =
Present value = $2.13
PV = P x PVF = 600 x 1/(1 + 0.006)^12 = 558.4386
