capitalized value of future income

capitalized value of future income

The value today of the right to receive income in the future. The concept rests on the principle that no one would pay $120 today for the right to receive $120 one year from today. Neither would anyone pay $120 today for the right to receive $10 per month over the next 12 months. Add to that the idea that relative risk affects a person's decision making. You might place $120 in an FDIC-insured savings account today,in order to receive $140 in one year. But,would you pay $120 to an out-of-work student,in exchange for her promise to pay you $140 in one year? Probably not.These two concepts—the time value of money and the evaluation of risk— are at the heart of discounting.Discounting is the basic tool for reaching a capitalized value of future income.See present value or discounted cash value.

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One could make a case that wealth is just the capitalized value of future income streams, but in the real world there is much more to it than that.