Investors purchase stocks in order to make money.
The more money the investor makes from a stock, the more that stock was worth when she bought it. There are two ways in which an investor can make money from a stock. One is by collecting dividend payments from the stock. The other is by selling the stock to someone else at a higher price than what one paid for it. By present value we mean the quantity of cash that if invested at a particular rate of return called the discount rate, would generate the same amount of money as the stock will.