Final answer:
The value of the discounted item, according to the concept of present discounted value (PDV), depends on future events and expected future profits. To calculate the present discounted value, consider the interest rate and determine the amount of money needed in the present to match a certain future amount. In the case of stocks, investors consider the future profits of a company in assessing its value.
Step-by-step explanation:
The value of the discounted item, according to the concept of present discounted value (PDV) in finance, depends on future events and expected future profits. PDV is used to calculate appropriate prices for stocks and bonds. To determine the present discounted value of a future payment, you need to consider the interest rate and calculate the amount of money you would need in the present to equal a certain amount in the future.
For example, if the interest rate is 10% and a payment of $110 is expected one year from now, the present discounted value would be $100. This means that you could take $100 in the present and have $110 in the future.
In the case of the given scenario, an investor would pay for a share of stock in Babble, Inc. based on the expected future profits of the company. If the investor believes that the company's profits of $15 million, $20 million, and $25 million in the present and in the next two years are reasonable and achievable, they will consider these future profits in calculating the present discounted value and determining the price they are willing to pay for a share of stock.