109 11. Introduction to Discounted Cash Flow Analysis and Financial ...

(e.g. 0.08 and not 8 for an 8% rate). The reverse of compounding – finding the present-day equivalent to a future sum – is known as discounting. Because $1000 invested for one year at an interest rate of 8% would have a value of $1080 in one year, the present value of $1080 one year from now, when the interest rate is 8%, is $1080/1.08 = $1000. ................
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