Present Value of Single Cash Flow with Single Period Investment

Present Value of Single Cash Flow with Single Period Investment

Present Value with a Single Cash Flow :

Present value (PV) is the current value of a single future cash flow discounted at the appropriate discount rate.

Time value of money for a single cash flow is a cash inflow or outflow that investors or lenders received from or paid to once respectively for specific periods

There are often four parts to equation (time value of money for a single cash flow): the present value (PV), the future value (FV), the discount rate (r), and the number of periods of the investment (t). If three of these (FV, r and t) are given, so we can find the present value (PV).

Formula of present value for a single-period investment:

A single-period investment may be investment for only one year. Term a single-period can refer to only one day or one month investment, so it isn’t always one year investment.

 

FV=PV x (1+i)

So PV = FV/(1+i)

Which

PV: Present Value are worth today

FV: Future Value are worth in the future

i: Interest rate, rate of return, or discount rate per period , but not always  one year

Question 

Suppose you need $ 400 to buy a computer next year. You can earn 7 percent on your money via lending your friend. How much do you have to put up today?

Solution

PV=FV/(1+i)=400/(1+0.07)=$373.83