DEFINITION
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
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

Net Present Value  NPV
The difference between the present value of cash inflows and the present value ... 
Discount Rate
The interest rate charged to commercial banks and other depository institutions ... 
Actuarial Equivalent
Actuarial equivalent is generally used for applying some measurement to two ... 
Yield
The income return on an investment. This refers to the interest or dividends ... 
Future Value  FV
The value of an asset or cash at a specified date in the future that is equivalent ... 
Internal Rate Of Return  IRR
The discount rate often used in capital budgeting that makes the net present ... 
Time Value of Money  TVM
The idea that money available at the present time is worth more than the same ... 
Present Value Interest Factor  ...
A factor that can be used to simplify the calculation for finding the present ... 
Discounting
The process of determining the present value of a payment or a stream of payments ... 
Above Par
A term used to describe the price of a security when it is trading above its ...
Related Articles

Bonds & Fixed Income
Accelerating Returns With Continuous ...

Bonds & Fixed Income
Understanding Bond Prices and Yields

Investing Basics
Calculating The Present And Future Value ...

Investing Basics
Understanding The Time Value Of Money

Forex Education
Time Value Of Money: Determining Your ...

Budgeting
What's the difference between net present ...

Options & Futures
What are the disadvantages of using ...

Active Trading
What Is Market Efficiency?

Fundamental Analysis
Getting On The Right Side Of The P/E ...

Investing Basics
Herding Tendencies Among Analysts