What Is The Meaning Of Present Value Formula Complete Guide

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what is the meaning of present value formula. The present value of a cash flow depends on the interval of time between now and the cash flow. Present value PV measures the current value of an amount of money or a stream of cash flows that is expected in the future.

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P Present value of an annuity stream PMT Dollar amount of each annuity payment r Interest rate also known as discount rate. Put in simple terms the present value represents an amount of money you need to have in your account today to meet a future expense or a series of future cash outflows given a specified rate of return. The purchase price initial investment.

The present value of the annuity is one of the very important concepts to figure out the actual value of the future cash flows.

Put in simple terms the present value represents an amount of money you need to have in your account today to meet a future expense or a series of future cash outflows given a specified rate of return. P PMT 1 1 1 r n r where. The purchase price initial investment. R interest rate.