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What is “discounting,” and how is it related to compounding? How is the future value equation related to the present value equation? How does the present value of a future payment change as the time to receipt is lengthened? As the interest rate increases? Using your results to address these questions. Suppose a risk-free bond promises to pay $2,249.73 in 3 years. If the going risk-free interest rate is 4%, how much is the bond worth today? ($2,000) How much is the bond worth if it matures in 5 rather than 3 years? If the risk-free interest rate is 6% rather than 4%, how much is the 5-year bond worth today? How much would $1 million due in 100 years be worth today if the discount rate were 5%? What if the discount rate were 20%?

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