Put it into practice.
At a hypothetical annual rate of 5%, $100 grows to $105 after one year. Discounting reverses the calculation: $105 due in one year has a present value of $100 at that rate.
A common mistake
Do not mix monthly and annual rates or simple and compound interest. These practice figures are assumptions, not current market rates or investment recommendations.
Original independent study explanation. Revised October 2026. Practice assumptions are illustrative.