PV - Revision history

Dirkjan at 19:25, 27 August 2020

2020-08-27T19:25:20Z

Dirkjan: Replaced content with "PV Category:finance Category:M12 Category:Principles of Corporate Finance Category:Term"

2020-08-27T18:39:20Z

Replaced content with "PV Category:finance Category:M12 Category:Principles of Corporate Finance Category:Term"

Dirkjan: Created page with "In Principles of Corporate Finance the concept of ''present value'' is defined as the value on a given date of a future payment or series o..."

2020-08-25T07:40:56Z

Created page with "In Principles of Corporate Finance the concept of ''present value'' is defined as the value on a given date of a future payment or series o..."

New page

In [[Principles of Corporate Finance|Principles of Corporate Finance]] the concept of ''present value'' is defined as the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. An intuitive understanding of present value is to see it as a mechanism to translate a future value to today: ''If i get \$100000 5 years from now and correct for inflation and interest, what would the actually value be today''

To calculate present value, just discount future [[Cash Flow|Cash Flow]] by an appropriate rate ''r''. Usually this rate ''r'' is called the discount rate, the hurdle rate or [[Opportunity Cost|Opportunity Cost]] of capital: For a single period the formula can be written as:

<math>\text{Present Value (PV)}</math> = <math>\frac {C_1}{1+r}</math>

<math>C_1</math> denotes the expected pay off at date 1 (for instance one year in the future).
<math>{1+r}</math> denotes the [[Discount Factor|Discount Factor]]

For multiple varying cash flows in several years the formula changes:

<math>{PV} = \sum{\frac{C_t}{(1+r_t)^t}}</math>

See also [[Net Present Value|Net Present Value]]
[[Category:finance]]

[[Category:M12]]

[[Category:Principles of Corporate Finance]]

[[Category:Term]]

← Older revision		Revision as of 18:39, 27 August 2020
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−	In [[Principles of Corporate Finance\|Principles of Corporate Finance]] the concept of ''present value'' is defined as the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. An intuitive understanding of present value is to see it as a mechanism to translate a future value to today: ''If i get \$100000 5 years from now and correct for inflation and interest, what would the actually value be today''	+	PV
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−	To calculate present value, just discount future [[Cash Flow\|Cash Flow]] by an appropriate rate ''r''. Usually this rate ''r'' is called the discount rate, the hurdle rate or [[Opportunity Cost\|Opportunity Cost]] of capital: For a single period the formula can be written as:
−
−	~~<math>\text{Present Value (~~PV~~)}</math> = <math>\frac {C_1}{1+r}</math>~~
−
−	~~<math>C_1</math> denotes the expected pay off at date 1 (for instance one year in the future).~~
−	~~<math>{1+r}</math> denotes the [[Discount Factor\|Discount Factor]]~~
−
−	~~For multiple varying cash flows in several years the formula changes:~~
−
−	~~<math>{PV} = \sum{\frac{C_t}{(1+r_t)^t}}</math>~~
−
−	~~See also [[Net Present Value\|Net Present Value]]~~
	[[Category:finance]]		[[Category:finance]]

← Older revision		Revision as of 19:25, 27 August 2020
Line 1:		Line 1:
−	PV	+	In [[Principles of Corporate Finance\|Principles of Corporate Finance]] the concept of ''present value'' is defined as the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. An intuitive understanding of present value is to see it as a mechanism to translate a future value to today: ''If i get \$100000 5 years from now and correct for inflation and interest, what would the actually value be today''
		+
		+	To calculate present value, just discount future [[Cash Flow\|Cash Flow]] by an appropriate rate ''r''. Usually this rate ''r'' is called the discount rate, the hurdle rate or [[Opportunity Cost\|Opportunity Cost]] of capital: For a single period the formula can be written as:
		+
		+	<math>\text{Present Value (PV)}</math> = <math>\frac {C_1}{1+r}</math>
		+
		+	<math>C_1</math> denotes the expected pay off at date 1 (for instance one year in the future).
		+	<math>{1+r}</math> denotes the [[Discount Factor\|Discount Factor]]
		+
		+	For multiple varying cash flows in several years the formula changes:
		+
		+	<math>{PV} = \sum{\frac{C_t}{(1+r_t)^t}}</math>
		+
		+	See also [[Net Present Value\|Net Present Value]]
	[[Category:finance]]		[[Category:finance]]