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Consider two entities, A and B, who each have a legal obligation to pay $1,000 cash to another entity, C, in ten years.
• Entity A has an excellent credit rating and can borrow at 5%, whereas Entity B has a lower credit rating and is able to borrow at 8%.
• Entity A will receive approximately $614 in exchange for its promise (the present value of $1,000 in ten years using a discount factor of 5%).
• Entity B will receive approximately $463 in exchange for its promise (the present value of $1,000 in ten years using a discount factor of 8%).
Hello sir, could you please explan to me what ‘receive’ means in this situation?
I have no idea. Where is this from?
Perhaps it means that C will lend 614 to A and be repaid 1000.
And C will lend 463 to B and be repaid 1000.