How is a present value associated with risk

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Reference no: EM13255378

Interest rate is the rate at which money grows into the future. The higher the interest rate, the faster today's amount grows into the future. However, to be able to do valuation, one needs to get used to thinking about the reverse, which involves the process of bringing the future back to present. We call this process discounting. How can you explain the fact that as the discount rate increases, the present value of a cash flow decreases? Why do I value a cash flow less, when discount rate goes up? How is a present value associated with risk?

Reference no: EM13255378

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