Conceptual Overview: Explore the amount $1 is discounted for different compound interest rates across time.

1. What is the present value of $1 due in 3 years when the discount interest rate is 10%?

1. $1.33
2. $1.00
3. $0.75
4. $0.10

2. How much is each $1 due in 14 years at a discount rate of 5% worth today?

1. $0.86
2. $0.51
3. $1.98
4. $1.00

3. Bond Long will pay $1 in 20 years with a discount interest rate of 5% and Bond Short will pay $1 in 5 years with a discount interest rate of 10%. Which bond has the higher present value?

1. Long greater than Short
2. Short greater than Long
3. Long and Short have same present value
4. Not enough information to determine

PVN=FVN1=(1+I)N1=(1+0.050)3.01=1.161=$0.86