Present value ifactor series#

For example, if someone offered you 1 million dollars today versus 1 million dollars 20 years from now, you would need to be able to compare the worth of $1 million today versus the worth of $1 million in 20 years.

Present value ifactor series#

The present value of a single amount is defined as the current worth of a single payment or series of payments to be received at a later date, given a specific adjustment for timing based on assumptions about interest rates and inflation. Present value is one of the most important concepts in the financial world and is always used when evaluating financial risks and opportunities. Borrowers use it to decide whether it makes sense to take a loan at a certain interest rate.

Executives use present value when deciding if an expensive project is worth the cost. Investors compare the present value of potential deals to decide which ones are worthwhile. The basic idea is simple: the same amount of money can be worth more or less depending on when it is received. Present value tells you how much an amount of money is worth after taking timing into account. If you could invest $1,000 today and receive $1,500 in 2 years, would that be a worthwhile deal? If you are offered a 10% discount to switch from monthly payments to an annual prepayment, should you take it? “Present value” is a concept that can help you answer questions like these with precision and confidence.

In financial decision-making, whether personal or for business, it is crucial to take timing into account.