What is your personal discount rate or rate of preferences? That is, how much would you pay for a promise of $1,000 to be received one year from now? Would you discount it by 10%, 5%, etc? Do research on the Internet and show the reference for the information. Professor’s Note: In addition to searching the Internet for text related to this threaded discussion, please watch the following videos (click on the following link to access these videos) and post your comments about the video’s. http://www.youtube.com/watch?v=ks33lMoxst0 Introduction to Present Value http://www.youtube.com/watch?v=4LSktB7Pk_c Present Value 2 http://www.youtube.com/watch?v=nScQsMmohZ0 Time value of money calculations using the TI BAII Plus calculator – part 1

Present value

Present discount rate is considered to be the current worth of a particular future sum of money together with its flow in a specified rate of return. The discount rate determines the proper way to value future flow of cash. The discounted value theory is demonstrated by the act of investing now is more worth than investing later. The investment will generate more income and will have increased its value in the coming years. 

Personal discount rate = $1000 * (1 + 0.045) ^ -1 = 0.95694

Personal discount rate = 0.95694 

 Discounted rate of 4.5% is the most accurate rate as it indicates expected increase future value. The rate shows the sum of time value together with relevant rates on interest which contribute to future increase in absolute or nominal terms. A capital provider is able to settle on fair mount through the discounted rates on future obligations and earnings relating them to the present value. 

References

http://www.youtube.com/watch?v=ks33lMoxst 0 Introduction to Present Value

http://www.youtube.com/watch?v=4LSktB7Pk_c    Present Value 2 

http://www.youtube.com/watch?v=nScQsMmohZ0 Time value of money calculations using the TI BAII Plus calculator – part 1

Campbell, J. Y., & Shiller, R. J. (1987). Cointegration and tests of present value models. Journal of political economy, 95(5), 1062-1088.