Principles of Microeconomics / Unit 15 MIC 1413 short lesson, about 20 seconds
Interest and Present Value
Captions available
The idea
Interest pays for postponing wealth's use. Present value is the sum needed now to equal a future sum: divide by one plus the rate, raised to the years, date by date.
In practice
At ten percent, one ten next year is worth one hundred now.
Where people slip
Present value falls as the rate rises or the wait lengthens, so bond prices move opposite to rates.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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