Present Value

Present value means the current worth of money that will be received in the future. In simple terms, present value asks what future money is worth today. Present value is important because investors compare future cash flows with today’s price. When interest rates or discount rates rise, the present value of future money usually falls. For example, $100 expected ten years from now is usually worth less than $100 today because money today can be used or invested immediately. Present value is not the same as future value. Present value is what future money is worth today, while future value is what today’s money may become later.