Could somebody please explain the concept of Discounting.... I am not able to understand at all... I mean how does that 1 Re after one year, 2 years and so on gradually becomes 0.9, 0.897, etc...
Plz help
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Discounting Concept??
Replies (5)
It is Money Value concept....
According to it present Rs. 1 is valued more than Rs. 1 received in future....
We can invest present Rs. 1 and can get returns. (so if we get that Rs. 1 now we can invest and make returns on it).....but when Rs. 1 is received later, we will miss the return which would have got if the Rupee had received now.....
So when Rs. 1 is received in future, it have less value than Rs. 1
so we use Discounting factors to get Present Value of future inflow
Hope you understood the concept.........
good explanation by dev
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