**Are you an EPFL student looking for a semester project?**

Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.

Concept# Present value

Summary

In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money has interest-earning potential, a characteristic referred to as the time value of money, except during times of zero- or negative interest rates, when the present value will be equal or more than the future value. Time value can be described with the simplified phrase, "A dollar today is worth more than a dollar tomorrow". Here, 'worth more' means that its value is greater than tomorrow. A dollar today is worth more than a dollar tomorrow because the dollar can be invested and earn a day's worth of interest, making the total accumulate to a value more than a dollar by tomorrow. Interest can be compared to rent. Just as rent is paid to a landlord by a tenant without the ownership of the asset being transferred, interest is paid to a lender by a borrower who gains access to the money for a time before paying it back. By letting the borrower have access to the money, the lender has sacrificed the exchange value of this money, and is compensated for it in the form of interest. The initial amount of borrowed funds (the present value) is less than the total amount of money paid to the lender.
Present value calculations, and similarly future value calculations, are used to value loans, mortgages, annuities, sinking funds, perpetuities, bonds, and more. These calculations are used to make comparisons between cash flows that don’t occur at simultaneous times, since time and dates must be consistent in order to make comparisons between values. When deciding between projects in which to invest, the choice can be made by comparing respective present values of such projects by means of discounting the expected income streams at the corresponding project interest rate, or rate of return. The project with the highest present value, i.e. that is most valuable today, should be chosen.

Official source

This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.

Related courses (16)

Related people (33)

Related publications (425)

Related lectures (56)

MGT-482: Principles of finance

The course provides a market-oriented framework for analyzing the major financial decisions made by firms. It provides an introduction to valuation techniques, investment decisions, asset valuation, f

FIN-401: Introduction to finance

The course provides a market-oriented framework for analyzing the major financial decisions made by firms. It provides an introduction to valuation techniques, investment decisions, asset valuation, f

CIVIL-466: Water resources management

Water is one of the fundamental earth resources that sustains all life forms. Despite being abundant as chemical compound, its accessibility and use depend on its physical status and quality. The anal

Covers interest rates, inflation impact, real vs nominal rates, and investment decisions.

Explores discounting and its impact on present value, emphasizing the importance of choosing the right discount rate for financial and climate-related decisions.

Explores discounting, compounding, and arbitrage in investment decisions with a focus on maximizing returns.

Ontological neighbourhood

A tree-related microhabitat (abbreviated as TreM) is a morphological feature present on a tree, which is used by sometimes highly specialised species during at least one part of their life cycle. These features may serve as shelters, breeding spots, or cru ...

We analyze and implement the kernel ridge regression (KR) method developed in Filipovic et al. (Stripping the discount curve-a robust machine learning approach. Swiss Finance Institute Research Paper No. 22-24. SSRN. https://ssrn.com/abstract=4058150, 2022 ...

Related MOOCs (2)

Related concepts (17)

Suliana Manley, Jenny Sülzle, Laila Abdelaziz Abdelmoniem Elfeky

Interferometric scattering (iSCAT) microscopy enables the label-free observation of biomolecules. Consequently, single-particle imaging and tracking with the iSCAT-based method known as mass photometry (MP) is a growing area of study. However, establishing ...

Soil and real estate economy

Qu'est-ce qui détermine les prix fonciers et les prix immobiliers en général? Comprenez les liens de ces prix avec les taux d'intérêt, les rentes foncières et les loyers. Un cours d'économie pour les

Soil and real estate economy

Qu'est-ce qui détermine les prix fonciers et les prix immobiliers en général? Comprenez les liens de ces prix avec les taux d'intérêt, les rentes foncières et les loyers. Un cours d'économie pour les

Time value of money

The time value of money is the widely accepted conjecture that there is greater benefit to receiving a sum of money now rather than an identical sum later. It may be seen as an implication of the later-developed concept of time preference. The time value of money is among the factors considered when weighing the opportunity costs of spending rather than saving or investing money. As such, it is among the reasons why interest is paid or earned: interest, whether it is on a bank deposit or debt, compensates the depositor or lender for the loss of their use of their money.

Rate of return

In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment over a specified time period, such as interest payments, coupons, cash dividends and stock dividends. It may be measured either in absolute terms (e.g., dollars) or as a percentage of the amount invested. The latter is also called the holding period return.

Net present value

The net present value (NPV) or net present worth (NPW) applies to a series of cash flows occurring at different times. The present value of a cash flow depends on the interval of time between now and the cash flow. It also depends on the discount rate. NPV accounts for the time value of money. It provides a method for evaluating and comparing capital projects or financial products with cash flows spread over time, as in loans, investments, payouts from insurance contracts plus many other applications.