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".
VIDEO
BREAKING DOWN '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.

Internal Rate Of Return  IRR
A metric used in capital budgeting measuring the profitability ... 
Net Present Value  NPV
The difference between the present values of cash inflows and ... 
Discount Rate
The interest rate charged to commercial banks and other depository ... 
Actuarial Equivalent
Actuarial equivalent is generally used for applying some measurement ... 
Yield
The income return on an investment. This refers to the interest ... 
Future Value  FV
The value of an asset or cash at a specified date in the future ...

Fundamental Analysis
What is Present Value?
Present value tells us how much a future sum of money is worth today, given a specified rate of return. This is an important financial concept based on the principle that money received in the ... 
Investing Basics
Calculating The Present And Future Value Of Annuities
At some point in your life, you may have had to make a series of fixed payments over a period of time  such as rent or car payments  or have received a series of payments over a period of time, ... 
Bonds & Fixed Income
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Bonds & Fixed Income
Understanding Bond Prices and Yields
Understanding this relationship can help an investor in any market. 
Investing Basics
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Forex Education
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation. 
Fundamental Analysis
Is India the Next Emerging Markets Superstar?
With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP. 
Term
Estimating with Subjective Probability
Subjective probability is someone’s estimation that an event will occur. 
Investing Basics
Understanding the ModiglianiMiller Theorem
The ModiglianiMiller (M&M) theorem is used in financial and economic studies to analyze the value of a firm, such as a business or a corporation. 
Economics
Explaining Kurtosis
Kurtosis describes the distribution of data around an average.

How can I use the Dividend Discount Model (DDM) effectively for a stock with fluctuating ...
The dividend discount model (DDM), also known as the Gordon growth model, assumes a stock is worth the summed present value ... Read Full Answer >> 
What's the difference between EaR, Value at Risk (VaR), and EVE?
Earnings at risk (EaR), value at risk (VaR) and economic value of equity (EVE) are measures used to assess potential value ... Read Full Answer >> 
How do you calculate present value in Excel?
Present value is the current value of an expected future stream of cash flow. The concept is simple. For example, assume ... Read Full Answer >> 
How do investors calculate the present value of a future investment?
Present value is the current worth of an expected future cash flow. Calculating the present value lets an investor gauge ... Read Full Answer >> 
Why is the time value of money (TVM) an important concept to investors?
The time value of money (TVM) is an important concept to investors because a dollar on hand today is worth more than a dollar ... Read Full Answer >> 
How does the privatization of a publicly traded company work?
Going private, also known as "going dark," is the process by which a formerly publicly traded company enters into a buyout ... Read Full Answer >> 
What are the disadvantages of using net present value as an investment criterion?
While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Full Answer >> 
What's the difference between net present value and internal rate of return? How ...
Both of these measurements are primarily used in capital budgeting, the process by which companies determine whether a new ... Read Full Answer >>