The difference between discounting and compounding are discussed below:
- Definition: Discounting is the process finding the present value 01 future cash flow or series of cash.
- use: For calculation of resent value.
- Amount of money: By this method amount of money is decreased.
- Value of money: In lower rate present value is increased and in higher rate present value is decreased.
- Time Line: Time lie goes to left side from right-hand side.
- Calculation: Future values are divided b interest factor.
- Result: Present or a discounted value.
- Definition: Compounding is the process of finding the future value of a cash flow or a series of cash flows.
- Use: For calculation of future value.
- Amount of money: Amount of money is increased.
- Value of money: In lower rate future value is decreased and higher rate future value is increased.
- Time Line: Timeline goes to right side from left-hand side.
- Calculation: Present value is multiplied by interest factor.
- Result: Future or compounded value.