Present Value Of Future Money

Money does not have its own pillars, but it still moves faster than all of us. This makes everyone have money. But time is a good balancer. If money does not flow, something that looks like a lot of money today turns into dust. But Johnny is interested in understanding things in reverse order. The fortune teller predicts Johnny will get a large amount of money within 30 years. Johnny wants to know the present value of the mountain of his future money. In other words, Johnny wants to know how to calculate the present value of the future currency.

The operation of evaluating present value as future value is called capitalization (amount equivalent to 100 dollars in the current 5 years). The reverse operation - evaluating the present value of future amounts - is called a discount (eg you can receive 100 dollars in 5 years in the lottery - are you worth today?) If you have to choose between receiving $ 100 today and receiving $ 100 per year, a reasonable decision is to cash 100 dollars today. If you receive money within a year and expect a 5% savings account rate, that person must provide at least $ 105 per year, so the two options are the same (today's $ 100 or 1 $ 105 per year). USD)). This is because if you deposit 100 dollars today into a savings account, it will be 105 dollars in a year.

Present value (PV) and future value (FV) are based on the time value of money. The time value of money is that idea. Quite simply, the money received today is more valuable than money received today (or any other future date). For example, if you deposit a certain amount of funds into your account, or if you gain a compound interest investment (earning interest), the future value is the original deposit or investment is the interest rate and period of compound interest (daily compound interest, monthly compound interest, etc.) It is an amount to increase according to. ), And the number of months or years

The money we hold denies the power to earn money. Future value means that the amount (present value) generated by today's investment will increase on a particular day in the future. Since money has time value, we definitely hope that the future value will be greater than the present value. The difference between these two depends on the number of compounding periods and the interest rates involved. If asked, most people choose to earn $ 10,000 now rather than later. Until they can now have the same amount, no sanity can postpone the payment. At the basic level, the time value of money suggests that it is better now than in the future. Even if the amounts are the same, you can now do more with this money. Finally, it can draw more attention