AP MacroeconomicsMoney, Banking & Finance
Present Value
Present value is what a future sum of money is worth today, after discounting for the interest that could be earned in the meantime.
Because money available now can earn interest, a dollar today is worth more than a dollar in the future. Present value is used to compare investments and value bonds. A higher interest rate lowers present value.
Formula / Example
Present value = Future value ÷ (1 + r)ⁿ.