Editing Discounting (section)

==Basic calculation==
If we consider the value of the original payment presently due to be ''P'', and the debtor wants to delay the payment for ''t'' years, then a market [[rate of return]] denoted ''r'' on a similar [[Investment|investment asset]] means the future value of ''P'' is <math>P(1 + r)^t</math>,<ref name="Economics_Discount"/><ref name="MathEcon_Chiang"/> and the discount can be calculated as

: <math>\text{Discount} = P(1+r)^t-P.</math><ref name="Economics_Discount"/>

We wish to calculate the [[present value]], also known as the "discounted value" of a payment. Note that a payment made in the future is worth less than the same payment made today which could immediately be deposited into a bank account and earn interest, or invest in other assets. Hence we must discount future payments. Consider a payment ''F'' that is to be made ''t'' years in the future, we calculate the present value as 

: <math>P=\frac{F}{(1+r)^t}</math><ref name="Economics_Discount"/>

Suppose that we wanted to find the present value, denoted ''PV'' of $100 that will be received in five years time. If the interest rate ''r'' is 12% per year then

: <math>{\rm PV}=\frac{\$100}{(1+0.12)^5}=\$56.74.</math>