# present value

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## Present value

The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of \$100 to be received in one year is \$100 x [1/(1 + 0.10)] = \$91.

## 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.

## present value (PV)

The current value of future cash payments when the payments are discounted by a rate that is a function of the interest rate. For example, the present value of \$1,000 to be received in two years is \$812 when the \$1,000 is discounted at an annual rate of 11%. Conversely, \$812 invested at an annual return of 11% would produce a sum of \$1,000 in two years. Compare future value. See also net present value.

## Present value.

The present value of a future payment, or the time value of money, is what money is worth now in relation to what you think it'll be worth in the future based on expected earnings.

For example, if you have a 10% return, \$1,000 is the present value of the \$1,100 you expect to have a year from now.

The concept of present value is useful in calculating how much you need to invest now in order to meet a certain future goal, such as buying a home or paying college tuition.

Many financial websites and personal investment handbooks provide calculators and other tools to help you compute these amounts based on different rates of return.

Inflation has the opposite effect on the present value of money, accounting for loss of value rather than increase in value. For example, in an economy with 5% annual inflation, \$100 is the present value of \$95 next year.

Present value also refers to the current value of a securities portfolio. If you compare the present value to the acquisition cost of the portfolio, you can determine its profit or loss.

Further, you can add the present value of each projected interest payment of a fixed income security with one year or more duration to calculate the security's worth.

## present value

see DISCOUNTED CASH FLOW.

## present value

see DISCOUNTED CASH FLOW.

## present value

Today's value for income to be received in the future.Two factors affect the analysis:(1) the perceived risk that one might receive nothing at all in the future,or a smaller amount than expected,and (2) the potential income from alternative investments that could be purchased if one were paid the present value for a future income stream.(Discounting is the mathematical calculation used to arrive at present value.)

References in periodicals archive ?
It will depend on the interest rate, and the Net Present Value (NPV) of the project with greater present value will be zero, while the less valuable project's NPV will be negative.
Then, I calculate the interest rate that would be required to make the Net Present Value of each project zero.
Once we correct for the changing cost of startup, the net present value and marginal efficiency criteria will give the same ordering--Project 2 is preferred if the interest rate is less than 28.
In this study, the net present value for each project is calculated from the perspective of the landowner and the results indicate the present value of return over costs to the landowner.
The annualized value of the net present value is calculated using equation (2).
88 percent to have an equivalent net present value.
Instead of simply adding together each year's cost or benefit, net present value analysis first converts the value of future costs and benefits to their actual value today.
To convert future dollars to present dollars, net present value analysis uses a number called a "discount rate.
phi]UD = Net present value of a project in an underdeveloped area.
We will discuss three different scenarios of fiscal concession to compute the net present value of a project in the developed and underdeveloped area.
Since the price of an investment project tends to equal the present value, there is a tendency for the net present value to equal zero.
All else equal, the net present value of an investment project increases as the interest rate falls.

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