Calculating Present Value

Note to myself. Of no public interest whatsoever.

An exciting topic that is virtually knocking me off my feet.

Present value of a future payment is the amount that one must have today to yield that payment at the future date, given the opportunity rate.

One way to calculate this is to use present value tables.

How much is the present value of receiving 4 million US$ in 6 years at an interest rate of 10% paid at the end of the 6 years?

The present value is calculate (amount received at end of period) * (opportunity rate for 10% and 6 years)-
Equals 4 million * 0.564 = 2.265 million US$

If it’s an annuity, i.e. a series of receipts or payments of the same size are received/made at regular intervals, then use present value table for annuities.

For example regular payments of rent 1.4 million US$ at the end of each year for 6 year at an interest rate of 10% have a present value of 1.4 million * 4.355 = 6.097 million $$$.

Alternatively you can use the Excel/OpenOffice function PV:

PV(rate; numperiods; payment; futurevalue; type)