Present Value

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Present Value

The dollar amount of money received today that would equal the value of money received in the future.

Let’s say the interest rate id 5%. If you had $1,000 you could put it in the bank and after a year your $1,000 would have grown to $1,050. Therefore $1,000 received today is equal in value to $1,050 received in a year. In this case, $1,000 is the present value of $1,050.

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