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Present Value Time Value of Money
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Definition The present value of an investment can be defined as the value that a future investment (amount of money) has today. It might be easier to understand if you think of the value that a dollar in the future will have today.
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Example Julia is 30 years old and now she is thinking about retirement. She is planning to retire in 30 years. She would like to retire with $ She has been browsing different investment options. The choices she found are the following:
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She can invest in a Certificate of Deposit that will pay an annual interest rate of 7.5% compounded semiannually She can open a savings account that offers to pay an annual interest rate of 6% compounded quarterly; or She can keep her money in her checking account that pays 1% annual interest rate compounded monthly
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Present Value of Money
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Certificate of Deposit Savings Account Checking Account
Present Value of Money Years till maturity Certificate of Deposit (principal needed) Savings Account Checking Account 100000 10 20 30
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