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PV

See:Present value

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Present Value

The worth of a future amount of money at specific point in time. If one expects an investment to result in a cash flow at a certain time in the future, calculating the cash flow's present value will help the investor decide whether the investment results in a real profit. Calculating the present value assumes that the investor knows both the future amount and the applicable interest rate or rate of return. One discounts the interest rate or rate of return from the future amount in order to arrive at the present value. Mathematically, this is expressed as:

Ct = C(1 + i)-t where C is money, t is a number of years, and i is the interest rate or rate of return.

Present value of money is important in calculating bond yields, the value of annuities, and many other transactions. It is also used in comparing the value of two amounts of money existing in different times. See also: Adjusted for inflation.

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PV

See present value.

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Present Value (PV)

What Does Present Value (PV) Mean?

The current worth of a future sum of money or stream of cash flows when there is a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to valuing future cash flows properly, whether they are earnings or obligations. Also referred to as discounted value.

Investopedia explains Present Value (PV)

This may sound confusing, but it really is not. The basic idea is that receiving $1,000 now is worth more than receiving $1,000 five years from now, because a person who has money today can invest it and receive an additional return over the five years. The calculation of discounted value or present value is extremely important in many financial calculations. For example, net present value, bond yields, spot rates, and pension obligations all rely on the principle of discounted value or present value. Learning how to use a financial calculator to make present value calculations can help an investor decide whether to accept a cash rebate, 0% financing on the purchase of a car, or to pay points on a mortgage. Investopedia recommends that investors get a calculator that computes PV.

Related Terms:
• Discount Rate
• Future Value
• Internal Rate of Return—IRR
• Net Present Value—NPV
• Time Value of Money