can someone plz explain if this incentive equation below makes sense, and if so, can you plz explain how it works? i just dont understand how the PV formula actually calculates the PV of future cash flows on this investment. thanks! theres a one year investment (GIC) with an embedded option to redeem anytime after 30 days. theres an annual rate given and if you redeem after 30 days, you will receive whatever interest you have accrued. after 30 days, this is the calculation for a customer’s incentive to redeem on a given reporting date: Incentive = (P + Accrued Interest - PV) / P where P = Rembal P + Accrued Interest = RemBal * (1 + OrigSwap * age/12) and PV = [RemBal (1 + OrigSwap)] / [(1 + RepSwap) ^ ((12-age)/ 12)] Rembal = remaining balance on the certificate OrigSwap = the one year swap rate at issue date RepSwap = the one year swap rate at reporting date Age = age of the certificate in months