Understand Discounted Cash Flow Rates
A DCF Income Payment investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
The Basics of Discounted Cash Flow and Time Value of Money
The basic premise is that the dollar you invest today will pay more than a dollar tomorrow. How much more? Well that depends on the rate or return, or the discount rate, of your invested dollar. Thus, there are three key terms to understand the concept of “Time Value of Money” and of discounted cash flow math.
Future Value- FV is one or more payments, at specific dates in the future. With DCF Income Payments, it’s the specific payment description, for example, “120 monthly payments of $1000 starting on 1/1/2020 until 12/1/2029” or “One lump sum of $100,000 on 12/1/2030”. This is the Future Value(s) you receive
Discount Rate- This is the rate at which a Future Value decays, or is discounted. In the most basic sense, $100 one year from now is worth $95 today, at a 5% discount rate. For our purposes with DCF Income Payments, the Discount Rate is the same as the Effective Rate and is also the same as the Internal Rate of Return (IRR), or the Annual Percentage Yield (APY). This rate is clearly shown on the inventory page.
Present Value- PV is the value today (or on a specific date) of the specific Future Value(s) of the payment stream, discounted to that purchase date at the Discount Rate shown. In our case, Present Value is also the Purchase Price or investment cost, and the day we use to calculate that PV is the ‘Priced On’ date shown in the calculator and on the inventory.
Every Future Value needs to be discounted using the Discount Rate, back to today, using the compounding period specified, to arrive at today’s Present Value for that specific payment.
Thus, every piece of information you need to verify the mathematics is shown on our inventory page, and so…
A DCF Income Payment investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
Understand Discounted Cash Flow Rates
A DCF Income Payment investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
The Basics of Discounted Cash Flow and Time Value of Money
The basic premise is that the dollar you invest today will pay more than a dollar tomorrow. How much more? Well that depends on the rate or return, or the discount rate, of your invested dollar. Thus, there are three key terms to understand the concept of “Time Value of Money” and of discounted cash flow math.
Future Value- FV is one or more payments, at specific dates in the future. With DCF Income Payments, it’s the specific payment description, for example, “120 monthly payments of $1000 starting on 1/1/2020 until 12/1/2029” or “One lump sum of $100,000 on 12/1/2030”. This is the Future Value(s) you receive
Discount Rate- This is the rate at which a Future Value decays, or is discounted. In the most basic sense, $100 one year from now is worth $95 today, at a 5% discount rate. For our purposes with DCF Income Payments, the Discount Rate is the same as the Effective Rate and is also the same as the Internal Rate of Return (IRR), or the Annual Percentage Yield (APY). This rate is clearly shown on the inventory page.
Present Value- PV is the value today (or on a specific date) of the specific Future Value(s) of the payment stream, discounted to that purchase date at the Discount Rate shown. In our case, Present Value is also the Purchase Price or investment cost, and the day we use to calculate that PV is the ‘Priced On’ date shown in the calculator and on the inventory.
Every Future Value needs to be discounted using the Discount Rate, back to today, using the compounding period specified, to arrive at today’s Present Value for that specific payment.
Thus, every piece of information you need to verify the mathematics is shown on our inventory page, and so…
A DCF Income Payment investment price is the Present Value cost of the specific Future Value payments shown, at the Discount Rate shown, and Priced On the date shown.
