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Glossary
The Present Value of Your Dreams

#### Present Value Formula

As with future value, there is a formula for calculating present value. Shown below is the formula. It looks very similar to future value because it is the future value formula, rearranged to provide an expression for present value.

PV=FV [1/(1+ i)n]
PV= Present value

Present value is the amount we don't know. This is the value we will solve for in our calculations. It's the amount we need today to achieve a determined future goal.

FV= Future value

Future value is the amount of money we want in the future. It is the amount that will be reduced at a determined interest rate to calculate the present value.

i= interest rate

Interest rate has a great effect on present value. The interest rate in our formula must be written in decimal form: for example, 3% is 0.03.

n= number of interest payments during a specified time

n indicates the number of times interest is applied.

Let's begin with the first question we asked earlier. In the future value lesson, we figured out a number of ways to save for the future… for a wedding, for a house, and determining how much that 10K windfall from grandma would grow. Those are all very important events in your life to save for and should be top priorities, but what about saving for the things you've only dreamed about!

To know how much to put aside for Lu Lu, we have to replace the variables in the present value equation with the figures related to purchasing Lu Lu. Do you know what values to replace FV, i, and n with? Enter your answers in the text boxes below. Click reveal answer to see if you are correct.

PV=FV[1/(1+i)n]

PV= [1/(1+ ) ]