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Present value |
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Present valueThe value today of a stream of payments and/or receipts over time in the future and/or the past, converted to the present using an interest rate. If Xt is the amount in period t and r the interest rate, then present value at time t=0 is V = St (Xt)/(1+r)t.Present valueThe amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor. For example, if the opportunity cost of funds is 10%, the present value of $100 to be received in one year is $100 x [1/(1 + 0.10)] = $91.Present value Similar MatchesNet present valueNet present valueA calculation which is based on the idea that £1 received in ten years' time is not worth as much as £1 received now because the £1 received now could be invested for those ten years and compound into a higher value.The NPV calculation establishes what the value of future earnings is in today's money. To do the calculation you apply a discount % rate to the future earnings. The further out the earnings are (in years) the more reduced their present value is.NPV is at the heart of securities analysis. Analysts use predictions of a company's future earnings and dividend payments, appropriately discounted back to current value, to establish a 'fundamental' value for the shares. If the current share price is below that value, then the shares are, on the face of it, attractive, If lower, they are 'overvalued'. In practice the analysis is more sophisticated, but it is based on the concept of NPV. Net adjusted present valueNet adjusted present valueThe adjusted present value minus the initial cost of an investment. Appointed representativeAppointed representativeSalesperson, company or organisation that advises on the investment products specific to one life assurance or investment company. Net present valueNet present valueSame as present value, being sure to include (negative) payments as well as (positive) receipts. Present Value Index (PVI)Present Value Index (PVI)The ratio of the NPV of a project to the initial outlay required for it. The index is an efficiency measure for investment decisions under capital rationing. Further SuggestionsPresent StatePresent value factor Net present value of growth opportunities Net present value rule Adjusted present value (APV) Registered representative AIMR Performance Presentation Standards Implementation Committee Proportional representation Present value of growth opportunities Registered Representative company representative (tied agent) Net present value (NPV) |
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