Interest rates and discount rates are the important tools used in the concept of time value of money. They are normally the two sides of the same coin. The future value of a present sum is the "compounded figure" at a particular rate of interest whereas the present value of a future sum is the discounted figure at a particular rate of discount. The usefulness of the discount and interest factors are widely felt in the parlous of financial management as any decision making will be irrelevant and untenable in the absence of the concept of time value of money.
The single payment compound amount factor is used in measuring the growth rates. For example, the population figures of a country at two points of time can be attributed to a particular annual rate of growth, the concept useful in economic indication. The four annuity type Interest formula can be used whenever a uniform stream of receipts and payments are involved. The capital recovery factor is very useful in engineering economy studies in which alternatives having different useful service lives are being compared.
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