# 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 ?
The stochastic upper and lower bounds on the present value of a sequence of cash flows are discussed in [20].
In Section 2, we give stochastic interest model based on compound Poisson process and further obtain mathematical expectation of present value of the payment paid at a future time point.
buy present value analysis does indeed prescribe a decision.
While the discount rate captures risk in a traditional present value analysis, is it reasonable to assume one discount rate captures the risk of the many different cash flows?
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.
As long as the interest rate is below 28.18 percent, the longer project has a higher present value, so entrepreneurs pursuing Project 2 will get control of the resources and pursue that project.
If a bond is purchased at face value on an issue or interest rate date, its present value is its face value.
These present value and future value concepts can also be used as the building blocks for other time value of money calculations.
* Because interest rates and retirement age have such a profound impact on present values, they are frequently litigated issues.
The notion that the value of an asset is the present value of the cash flows that you expect to generate by holding it is neither new nor revolutionary.
The discount rate that is used to compute present values and other time adjusted dollar values is extremely important in most cases.

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