文档介绍：Finance Concepts I:
Present Discounted Value,
Risk/Return Tradeoff
Federal Reserve Bank of New York
Central Banking Seminar
Preparatory Workshop in Financial Markets,
Instruments and Institutions
Anthony Rodrigues
October 17, 2005
Outline
• Comparison of Payments Received at Different Times
Interest Rates, Present Discounted Value
• Comparison of Uncertain Payments
Risk, Expected Return
Payments Received at Different Times
• A future payment has less value than the same payment received
today.
• Is $10 today worth as much to you as $10 received next year?
• Cash received today can be used anytime between now and next
year so it’s more valuable than cash received a year from now.
Price of Future Payments Drops for More Distant Payment Dates
Treasury Strips Prices on 8/26/2005
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01/14/04 10/10/06 07/06/09 04/01/12 12/27/14 09/22/17 06/18/20 03/15/23 12/09/25 09/04/28 06/01/31
Payment Date
Source: Bloomberg
Evaluating Future Payments
• How pare payments at different times?
• The Present Discounted Value (PDV) of the payments
converts future payments to current values that can be
compared.
• When you can borrow or save at a particular interest rate,
that rate can be used to discount future payments.
Years from Now 0 1 2 3
PDV of $1000 at 10% $1000 $909 $826 $751
PDV of $1000 at 15% $1000 $870 $756 $658
• More distant payments typically have lower PDVs.
Eva luating Future Payments: Examples
• Suppose that my borrowing/saving rate is 10% (per year).
• The future values of $1000 today:
Years from Now 0 1 2 3
Future Value of $1000 at 10% $1000 $1100 $1210 $1331
0 1 2 3
Multiply $1000 by: (1+) (1 +) (1+) (1 +)
• Present values of $1000 at different times in the future:
How much could I borrow today and repay with $1000 in the future?
Ye ars from Now 0 1