Imagine that you will have the opportunity to receive a large payment at some time in the future (it could be your higher income for having completed college!) Choose the amount and how many years this will be in the future. Then choose a reasonable discount rate. Use the online calculator to find the present discounted value of your payment.
Then repeat the calculation with a new, higher discount rate
- What future payment did you choose? Why?
- Explain why your original discount rate was reasonable.
- Why might you want to make this calculation?
- Explain why the PDV changed when you raised the discount rate.