From the course: Investment Evaluation

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Present, future, and terminal values

Present, future, and terminal values - Microsoft Excel Tutorial

From the course: Investment Evaluation

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Present, future, and terminal values

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- Let's start with a basic understanding of monetary value. When selecting whether a project is worth your effort and money it's important to determine the present value of that investment. For example, imagine that you have an investment opportunity from which you'll get $2000 a year from now and another $2000 two years from now. Now imagine that the discount rate is 4%. How much would you be willing to pay for this particular investment right now. How much is that investment worth to you currently? Remember, the $2000 in two years has a much lower real value right now. That's why we're applying the discount rate, basically to account for inflation. And you have two pay periods, one in one year and the other in two years. So what's the $2000 in the future worth right now? Here's what the equation for the calculation for present value looks like. Where FV is the future value, i is the discount rate, and n is the number of years. So it looks like you're gonna have to bust out that…

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