Present Value (PV)
Present Value (PV) is a financial term used to describe the current value of a future sum of money or stream of cash flows given a specified rate of return. It is used to compare the value of money today to the value of money in the future, taking into account the time value of money and inflation. Present Value is used to determine the value of an investment today, based on the expected return of the investment in the future. It is also used to calculate the amount of money that needs to be invested today in order to achieve a desired future value.
History of Present Value
The concept of Present Value was first developed by Italian mathematician and philosopher, Luca Pacioli, in the 15th century. He was the first to recognize the concept of time value of money, which states that a dollar today is worth more than a dollar tomorrow. The concept of Present Value was further developed by Blaise Pascal and Pierre de Fermat in the 17th century. In the 19th century, the concept of Present Value was further refined by Irving Fisher, who developed the concept of the real rate of interest. Present Value is now widely used in finance and economics to value investments, calculate loan payments, and compare different investment options.
Comparison Table
| Present Value | Future Value |
|---|---|
| $100 | $110 |
| $200 | $220 |
| $300 | $330 |
Summary
Present Value is a financial term used to calculate the current value of a future sum of money or stream of cash flows given a specified rate of return. It is used to compare the value of money today to the value of money in the future, taking into account the time value of money and inflation. Present Value is used to determine the value of an investment today, based on the expected return of the investment in the future. For more information about Present Value, please visit Investopedia, The Balance, and Investing Answers.
See Also
- Future Value
- Time Value of Money
- Discount Rate
- Net Present Value
- Internal Rate of Return
- Annuity
- Compound Interest
- Inflation
- Real Rate of Interest
- Cash Flow
