So, when doing a discounted cash flow, I know the formula to use is:
PV = CF / (1 + r)^t
So, the PV of $1,000 in 2 years' time using a discount rate of 5% = $907.
Say I use a different formula:
X = CF * (1 - r)^t
X = $1000 * (1 - 5%)^2
= $903
This is could be a really silly question, but I'm trying to understand the difference between these two formulae. Or, I guess, does the second formula actually exist to solve for anything?
PV = CF / (1 + r)^t
So, the PV of $1,000 in 2 years' time using a discount rate of 5% = $907.
Say I use a different formula:
X = CF * (1 - r)^t
X = $1000 * (1 - 5%)^2
= $903
This is could be a really silly question, but I'm trying to understand the difference between these two formulae. Or, I guess, does the second formula actually exist to solve for anything?