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# Time Value of Money: Present Value & Future Value - Lesson - Formula - Subjectmoney.com

More From: Subjectmoney
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http://www.subjectmoney.com http://www.subjectmoney.com/articledisplay.php?title=Time%20Value%20of%20Money:%20Present%20Value%20and%20Future%20Value What is future value? Future value is the value that money today will be worth at some point in the future if invested for a return. For example, we have \$100 today, and we invest it for 1 year at 10% interest, then in 1 year the Investment will be worth \$110. In other words, the future value of \$100 invest for 1 year at 10% is \$110. This is because we will still own the original \$100 and we also earned 10%, an additional \$10. In total our \$100 investment will be worth \$110 in 1 year. The future value formula is shown below. What is present value? Present value is today's value of a future Cash Flow . For example, everyone knows that \$100 today is more valuable than \$100 in the future, but what about \$110, \$120 or even \$200 in the future. How do we calculate what they are worth today? To calculate the present value of a future cash flow we would need a few pieces of information. We need to know when to expect the cash flow, the value (future value) of the cash flow, and the Discount rate . What is the discount rate? The discount rate is the Opportunity Cost s that you have foregone to receive funds in the future. I know, this may sound confusing but it should eventually click. An easy way to understand the discount rate is to ask yourself this question. What kind of investment returns are available to me? If I had \$100,000 today, what would the return be on my investment one year for today? Whatever that rate is would be your opportunity cost and would therefore be your discount rate. (It can be more complicated that this when comparing risk but this is a simplified lesson.) https://www.youtube.com/user/Subjectmoney https://www.youtube.com/watch?v=XF_3Dt-8OPE http://www.roofstampa.com hjttp://roofstampa.com http:/www.subjectmoney.com http://www.excelfornoobs.com
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Ali Hassan (9 months ago)
man put a blank 1 min outro at the end of the video for more ad revenue lmaooo
nanda aravind (10 months ago)
Thanks for the video!!!
Martin Hottel (1 year ago)
This video has substantive information, but I have never listened to a more monotonous, boring, dreary, and sleep-inducing presentation in my life.
Azeem Ben Ysreal (1 year ago)
Mark A (2 years ago)
I have a question: how does the present discount value formula take into consideration the inflation that might happen x years from today? With your lottery example, other than plugging in the numbers in the formula, how do we know for certain that \$1,050,000 a year from now is worth about 950,000 today?
Azeem Ben Ysreal (1 year ago)
If it is place in a Trust holding account all asset interest is protected, rem the bank is Insolvents it not effected by the market condition
Lise Grigsbys (2 years ago)
Thank you!!!! you finally made sense to  concept plaguing me
Grigoriy Perov (2 years ago)
Thanks!
sharanaithal (2 years ago)
Helped a lot, thanks!
Munja (2 years ago)
what is opportunity cost?
Syed Jaffer Zaidi (2 years ago)
+Munja Giving up on something and choosing another/alternative thing. http://examples.yourdictionary.com/opportunity-cost-examples.html
AfgJawid (3 years ago)
what is the point of putting music  on the background ... :( music is annoying me
mzgemini0006 (3 years ago)
Thanks!!! Very informative
mordecai98 (3 years ago)
Excellent video, very clear.  The music is distracting, though.
Rachel Jones (4 years ago)
This was awesome. I didn't understand a thing my book said.  This broke it down very simply. Thank You!!
TheGeForceNick (4 years ago)
Why can't my teacher teach like this? Thanks a lot! Very Helpful!!!!!!!!!!
goddamit why couldn't my 2 years of university economics explain it this way in TWO YEARS?
Subjectmoney (5 years ago)
If my free tutorials have helped you in any way please repay by liking, commenting, sharing and saving the videos to your favorites. Your interaction improves﻿ the search ranking of my tutorials which motivates me to keep making more. Thanks for the support!
NAREK75 (5 years ago)
1st question learned, 29 more to go (state exams !)