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capitalized value of future income |
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capitalized value of future income The value today of the right to receive income in the future. The concept rests on the principle that no one would pay $120 today for the right to receive $120 one year from today. Neither would anyone pay $120 today for the right to receive $10 per month over the next 12 months. Add to that the idea that relative risk affects a person's decision making. You might place $120 in an FDIC-insured savings account today,in order to receive $140 in one year. But,would you pay $120 to an out-of-work student,in exchange for her promise to pay you $140 in one year? Probably not.These two concepts—the time value of money and the evaluation of risk— are at the heart of discounting.Discounting is the basic tool for reaching a capitalized value of future income.See present value or discounted cash value. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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