Present value, also known as discounted value describes how much a future sum of money is worth today.
The present value is conversely related to the discount rate. Thus, a higher discount rate implies a lower present value and vice versa.
Formula to calculate present value.
r = rate of return.
n= number of periods.
Example:
An investor invested for 5 years in a certain project with a 5% rate of return and earned $ 100,000. Determine the present value.
Thus, the present value is $ 78,353.62.
