Suppose you are going to receive $10,000, to be paid in two payments at the end of the next two years. You have the following two options
Whichoptionwouldyouselectinordertohavethemaximumgain?Ofcourse,ifthereisnointerest,bothoptionsareequal.Ifanynon-zerointerestratesareinvolved,oneoptionmaybepreferablethantheother.BycalculatingtheUnknown node type: emoftheseoptions,onemaybeabletocomparethe``present′′Pt¿0PV(P)Pt=00trPV(P)r0ttP5%AA=-P_0=-PV(P_0)