PDV of $1 Paid in the Future Interest Rate 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 0.07 0.9350.873 0.713 0.508 0.258 0.131 0.08 0.9260.857 0.681 0.463 0.215 0.099 0.09 0.917 0.842 0.650 0.422 0.178 0.075 0.10 0.909 826 0.6210.3860.149 0.057 0.15 0.8700.756 0.4970.247 0.061 0.015 0.20 0.8330.694 0.4020.1620.026 0.004
PDV of $1 Paid in the Future 0.07 0.935 0.873 0.713 0.508 0.258 0.131 0.08 0.926 0.857 0.681 0.463 0.215 0.099 0.09 0.917 0.842 0.650 0.422 0.178 0.075 0.10 0.909 0.826 0.621 0.386 0.149 0.057 0.15 0.870 0.756 0.497 0.247 0.061 0.015 0.20 0.833 0.694 0.402 0.162 0.026 0.004 Interest Rate 1 Year 2 Years 3 Years 4 Years 5 Years 6 Years
Present Discounted Value(PDV a Valuing Payment Streams o Choosing a payment stream depends upon the interest rate Chapter 15 Slide 12
Chapter 15 Slide 12 Present Discounted Value (PDV) ◼ Valuing Payment Streams ⚫ Choosing a payment stream depends upon the interest rate
Two Payment Streams Today 1 Year 2 Years Payment Stream A: $100 $100 0 Payment Stream B: $20 $100 $100 Chapter 15 Slide 13
Chapter 15 Slide 13 Two Payment Streams Payment Stream A: $100 $100 0 Payment Stream B: $20 $100 $100 Today 1 Year 2 Years
Two Payment Streams 100 ■ PDV of Stream a= (1+R) PDV of stream B 100 100 (1+R)(1+R)2 Chapter 15 Slide 14
Chapter 15 Slide 14 2 (1 ) 100 (1 ) 100 PDV o f Stream (1 ) 100 PDV o f Stream R R B R A + + + = + = Two Payment Streams ◼
PDV of Payment Streams R=.05R=.10R=:15R=.20 PDV of Stream A:$195.24$190.90$18696$18333 PDV of stream B:205.94193.54182.57172.77 Why does the PDV of A relative to B increase as R increases and vice versa for B? Chapter 15 Slide 15
Chapter 15 Slide 15 PDV of Payment Streams PDV of Stream A: $195.24 $190.90 $186.96 $183.33 PDV of Stream B: 205.94 193.54 182.57 172.77 R = .05 R = .10 R = .15 R = .20 Why does the PDV of A relative to B increase as R increases and vice versa for B?