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PV

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

PV

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.