The Present Value of Money

In 100 words or more respond to the statement below about present value

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  • One reason why present value calculation is useful because you want to see the possible future earnings. Any money that you receive today will be better if you invest because it will draw more money. There is an old saying that a dollar today is worth more than a dollar tomorrow because the dollar can be invested and earn a day’s worth of interest, making the total accumulate to a value more than a dollar by tomorrow. Interest can be compared to rent. Just as rent is paid to a landlord by a tenant, without the ownership of the asset being transferred, interest is paid to a lender by a borrower who gains access to the money for a time before paying it back.