The Present Value of Your Dreams
- Present value is the current value of a future sum of money, given a specified
rate of return.
- The present value formula is PV=FV[1/(1+i)n]
- PV stands for present value—It is the unknown amount; the amount solved
for in the calculation. It's the amount we need today in order to reach a
- FV stands for future value. It's the amount we want to have in the future. If
you want, think of it as the financial goal you hope to achieve.
- i stands for the interest rate, which 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 stands for the number of payments of interest.