MAFA/SFM

This query is : Resolved

Querist : Anonymous

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

amit

amit (Expert)
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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).

Querist : Anonymous

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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