Definition:
Present Value (PV)
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Present value is the value on a given date of an amount of money in the future (payment, price, cash flow, etc.), discounted to reflect the time value of money.Present value uses a particular discount rate to translate values across time. The discount value is determined by certain factors such as investment risk.
Present value calculations are used to provide a means to compare cash flows and values at different times.
The present value of a cash flow can be determined by the following function:
PV = CF/(1+r)^n Where CF is the cash flow n years in the future, and r is the discount rate.
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