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# 1. Present value

Calculating the present value of money answers the question;

If an investment promises to pay me a certain amount in future, how much is that sum worth today?

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MORE IDEAS ON THIS

### The formula for the present value of future payments

PV= FV / (1+i)n

Where:

PV=Present value

FV=Future value

i=Interest rate

n=Number of years.

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### Factors To Consider In Your Decision

Choosing the investment with the highest interest rate (returns rate) is viable but this doesn’t work in all cases, because it might be difficult to estimate the return rates on all available options.

The length of time it takes for each investment to pay their respective returns should als...

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### The Foundations of A Successful Investment

Investment in its most simple form means “using an asset you own to generate future profits” and assets don’t always mean money; sometimes it could be time, effort, or a property you own.

With this perspective, we can consider two school kids pledging porti...

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### 2. Future Value of money

This answers the questions:

I have a certain amount in hand today, how much is it worth in future?

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### What You Have Learnt

• The time value of money is vital in making business decisions
• The present value of money can be used to estimate what the profit of your investment is worth in today’s terms.
• Discount rates or interest rates can be determined by considering what return you’ll get from another...

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### How Is This Applied?

The time value of money rule is:

"Money received today is worth more than that same amount received in future."

The time value of money is used to guide investment decisions. Before you invest, you want to know which of the options before you promises the highest prof...

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### Interest rates

Interest rates used in the present value or future value formula can also be called discount rate. When considering an investment, it is appropriate to use the opportunity cost of putting your money elsewhere as your interest rate.

This is calculated as:

Opportunity Cost = FO−...

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# CURATED BY

Writer, artist, Accountant and a forever learner. Learning, loving, Hoping.

These ideas explain the importance of time value considerations in making investment decisions.

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## More like this

### Future value

The value of a business today is the sum of all the money it will make in the future. Great businesses have the ability to generate significant cash flows in the future.

This explains why promising tech companies have such high valuations. Most of that value will come 10 to...

The value of a business today is the sum of all the money it will make in the future.

### Monetary Value of Time

We all have some idea of how much our time is worth. On extreme ends, it is easy to know if a task is worth your time. For instance, if someone offers you \$0.07 per hour and another \$7,000 per hour, you would have no problem to decide.
However, in the middle of the time-value spec...

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