1. Present Value
Time Value of Money

2. 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.

3. 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:

4. 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

5. Present Value of Money

6. 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