This week we looked at present value. Equivalently, present value is the dollar amount you would pay today to have access to a future stream of payments. To understand present value, you must understand opportunity cost.
Opportunity cost is the value of the next best alternative.
As an example, let's say that you have some cash and you are deciding what to do with it. Call FV the Future Value, PV the Present Value, and i the interest rate. All Rights Reserved.