ocr: The Mathematics ofDiscounting. The process of converting present values into tuture values IS called - - compounding" We can tollow a simple example to demonstrate how compounding pperates. Let's see how the tuture value of E100 invested at a rate of10% per ITUIL can be calculated. Year 0 E100 Yearl 100x1.10 £110 Year. - 2 110x1.10 £121 Year. 3 121x1.10 £133.10 Note that it: is usual to assume that cash intlows during ay year occur at the end of that year. This is an assumption which simplifies the calculation as well as lending itselt - to. a - - conservative" approach. Furthermore, we always ...
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