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( Present value)
Present value is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. Present value calculations are widely used in business and economics to provide a means to compare cash flows at different times on a meaningful "like to like" basis. The most commonly applied model of the time value of money is compound interest. To someone who has the opportunity to invest an amount of money C for t years at a rate of interest of i% (where interest of "5 percent" is expressed fully as 0.05) compounded annually, the present value of the receipt of C, t years in the future, is The expression (1 + i)-t enters almost all calculations of present value. Where the interest rate is expected to be different over the term of the investment, different values for i may be included; an investment over a two year period would then have PV (Present Value) of Present value is additive. The present value of a bundle of cash flows is the sum of each one's present value.
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