rate to apply for discounting to the present can be tricky. One needs to take into account both potential capital

gains from the future sale of the stock and also dividends that might be paid. Differences of opinion on these

issues are exactly why some financial investors want to buy a stock that other people want to sell: they are

more optimistic about its future prospects. Conceptually, however, it all comes down to what you are willing to

pay in the present for a stream of benefits to be received in the future.

Applying Present Discounted Value to a Bond

A similar calculation works in the case of bonds. Financial Markets explains that if the interest rate falls after a

bond is issued, so that the investor has locked in a higher rate, then that bond will sell for more than its face

value. Conversely, if the interest rate rises after a bond is issued, then the investor is locked into a lower rate,
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