Present Value - PV

AAA

DEFINITION of 'Present Value - PV'

The current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.

Also referred to as "discounted value".

INVESTOPEDIA EXPLAINS 'Present Value - PV'

This sounds a bit confusing, but it really isn't. The basis is that receiving $1,000 now is worth more than $1,000 five years from now, because if you got the money now, you could invest it and receive an additional return over the five years.

The calculation of discounted or present value is extremely important in many financial calculations. For example, net present value, bond yields, spot rates, and pension obligations all rely on the principle of discounted or present value. Learning how to use a financial calculator to make present value calculations can help you decide whether you should accept a cash rebate, 0% financing on the purchase of a car or to pay points on a mortgage.

RELATED TERMS
  1. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  3. Actuarial Equivalent

    Actuarial equivalent is generally used for applying some measurement ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Future Value - FV

    The value of an asset or cash at a specified date in the future ...
  6. Internal Rate Of Return - IRR

    The discount rate often used in capital budgeting that makes ...
Related Articles
  1. Calculating The Present And Future Value ...
    Investing Basics

    Calculating The Present And Future Value ...

  2. Accelerating Returns With Continuous ...
    Bonds & Fixed Income

    Accelerating Returns With Continuous ...

  3. Understanding Bond Prices and Yields
    Bonds & Fixed Income

    Understanding Bond Prices and Yields

  4. Understanding The Time Value Of Money
    Investing Basics

    Understanding The Time Value Of Money

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center