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MAFA/SFM

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Querist : Anonymous

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Querist : Anonymous (Querist)
14 November 2010 Hi Experts,
In the foward Rate Formulae
(i.e)
present value=Futurevalue(interest)/(1+r1)+Future value(interest+principle)/(1+r1)*(1+r2)
My doubt what is the reason for taking (1+r1) even in the 2nd year?can anyone xplain me
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amit

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amit (Expert)
14 November 2010 this formula will be applicable if the rates in bothe the years are different.

And if the rate is same then you can apply the following formula :

present value=Futurevalue(interest)/(1+r1)+Future value(interest+principle)/(1+r1)*(1+r1)

or

present value=Futurevalue(interest)/(1+r1)+Future value(interest+principle)/(1+r1)^2


So for different rate we have to put (1+r1).
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Querist : Anonymous

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Querist : Anonymous (Querist)
14 November 2010 no sir we are discounting future value in the secomg year in such case y we are taking (1+r1) again instead of only (1+r2) pls xplain me in detail im in great confusion
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