![]() Intuitively, we know that the present value will be less than the future value.įor example, if you had the choice of receiving $12,000 today or in 2 years, you would take the $12,000 today. ![]() Problems and questions like this are known as "present value of a single amount problems." This is because we are interested in finding the present value, or the value today, of receiving a set sum in the future. ![]() Many times in business and life, we want to determine the value today of receiving a specific single amount at some time in the future.įor example, suppose you want to know the value today of receiving $15,000 at the end of 5 years if a rate of return of 12% is earned.Īnother way of asking this question is: What amount would you need to invest today at 12% compounded annually in order to receive $15,000 after 5 years? Present Value of a Single Amount: Explanation The value of a future promise to pay or receive a single amount at a specified interest rate is called the present value of a single amount. What Is the Present Value of a Single Amount?
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