Why this is mistaken
Compounding multiplies by (1+i)^n; discounting multiplies by its reciprocal.
Using the same rate, periods, dates, and precision should recover the opening
amount after a round trip. Teach the pair as one reversible mapping, then use
failure of the inverse check to diagnose units, signs, period count, or rounding.
Where to watch
When this mistake may appear
- A problem asks for present value after a future-value example.
- Someone chooses multiplication or division from keywords alone.
Check your work
Your work may contain this mistake if:
- Subtracts simple interest from a future amount to obtain present value.
- Cannot compound a computed present value back to the supplied future amount.