Identify factors that determine present value. Understand and discuss the concepts of present and future value.

Canon Inc. – Time Value of Money

It is the future cash flow’s discounted present value. This is a concept that can be applied in personal finance and business finance. The following formula can calculate the present value: PV = FV + (1 + i), where FV is the future value, i the discount rate, and n the number of periods in the future when the payment will be made. Inflation rate, interest rate, and time horizon all play a role in determining the present value.

The purchasing power of the dollar decreases over time due to inflation. This affects current values. When inflation causes prices to rise, more money can be bought than tomorrow. Therefore, investors should consider these dynamics when they compare different investment options.

In determining future values, interest rates are also an important factor. These rate measures the investor’s expectation of return from investments. Therefore higher returns can lead to greater present value for cash flows. It is important to consider the time frame because while longer-term investments are less risky, but they require more capital to begin with. In contrast to short-term investments which may have greater potential returns and lower initial costs, shorter-term investments can have lower risk.

Future Value (FV) involves projecting how much an investment would be worth at some point in the distant future without factoring in any potential fluctuations caused by market conditions or other external factors beyond one’s control; thus it cannot accurately depict what an investor would actually receive if he/she were holding onto such investment up until then—which is why calculating its ‘present’ equivalent becomes necessary so as to determine its current worth based on realistic expectations of returns being generated at given timeframe(s).

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