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We all know that a dollar today is worth more than a dollar tomorrow. This is because in a situation of rising prices, the purchasing power of a dollar decreases as time passes. We need to know how much a dollar that we are going to receive in the future is actually worth today. This is known as present value of money. Let's start our discussion with the difference between present value and future value of money. Explain compounding and discounting of interest with suitable examples.
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