Present Value

Present Value: the present value is the amount that must be invested now to produce the known future value. For any sum invested at a given interest rate, the amount one would receive at the end of the period can be determined by taking the investment time’s one (1) plus the interest rate of the period to the power of the period. For example, if $10 is invested in an interest rate of 10% for one year, the investment would grow to $11 at the end of the year. It follows, then, that $11 one year from now is worth $10 today; $10 is the present value of $11.

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