Present value

The amount that must be invested today at a given rate of interest over a specified time is called present value.

The present value of a bond is the value at which it should sell in the marketplace. Market value therefore is a function of the three factors that determine present value: (1) the dollar amounts to be received, (2) the length of time until the amounts are received, and (3) the market rate of interest.

Present value means today’s value of a payment to be received in the future when the interest rate is i. Also called present discounted value.

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