Your 13-year old cousin knows that you are in college and learning corporate finance. She is very interested in knowing about the time value of money and tells you: "Cousin, I want to be a millionaire and learn everything about the time value of money. I need you to explain some concepts that I read on the internet, but I don't quite understand.

What is compounding and discounting? What is the difference between them? Furthermore, why should I be willing to invest in the promise that I will receive a future payment?

Does the answer depend on who is making the promise?"

Answer rating: 100% (QA)

Compounding and discounting are two fundamental concepts related to the time value of money Lets start with compounding Compounding refers to the proc... View the full answer