Question

How can we determine the value of a two period investment what components are included in the calculation?

Answer 1

Value of an investment doing in two period can be determined by present value method.
Using the present value method discounted today's value calculated using appropriate rate
of return. Suppose by investment of $ 500 in year one and two equally and receipt of maturity
Value expected to $ 1500 (including interest) at the end of 2nd year then using present value
method at rate of return of 10% is $ 1,240 as calculate below.
Year	Cash inflow	P.V. Factor @ 10%	Discounted Value
(a)	(b)	(c )	(d =bxc)
1	0	0.909	-
2	1500	0.826	1,240
Investment value	1,240
Component includes in determination of investment value :
(i) Present value maturity received
(ii) Present value of Interest or benefits (net of expenses)to be received.