Difference between discounting and compounding - QS Study
QS Study

The difference between discounting and compounding are discussed below:

Discounting:

  1. Definition: Discounting is the process finding the present value 01 future cash flow or series of cash.
  2. use: For calculation of resent value.
  3. Amount of money: By this method amount of money is decreased.
  4. Value of money: In lower rate present value is increased and in higher rate present value is decreased.
  5. Time Line: Time lie goes to left side from right-hand side.
  6. Calculation: Future values are divided b interest factor.
  7. Result: Present or a discounted value.

Compounding:

  1. Definition: Compounding is the process of finding the future value of a cash flow or a series of cash flows.
  2. Use: For calculation of future value.
  3. Amount of money: Amount of money is increased.
  4. Value of money: In lower rate future value is decreased and higher rate future value is increased.
  5. Time Line: Timeline goes to right side from left-hand side.
  6. Calculation: Present value is multiplied by interest factor.
  7. Result: Future or compounded value.