What Does Present Value Mean?
Present value refers to the present amount of money that is needed to match an amount in the future. It is calculated with future cash flows and the rate of return or interest.
It is also known as discounted value and present discounted value.
Insuranceopedia Explains Present Value
One gets the present value by knowing the future cash flow and its interest. The higher the rate of return, the lower the present value.
Present value is responsible for a number of financial decisions, including the price for stocks and bonds. In corporate settings, the present value is more of an estimate than an exact calculation, given the number of variables in the financial market.