SUBJECT: FINANCIAL MANAGEMENT BY ANKITA AGRAWAL ROLL NO.

: 118Z1E0007

Present Value is the current value of a future amount of money, or a series of payments, evaluated at a given interest rate. The present value of money can be calculated in three ways. They are:
Present value of lump sum amount Present value of cash flows stream Present value of an Annuity

Present value calculations determine what the value of a cash flow received in the future would be worth today. The process of finding a present value is called discounting . The interest rate used to discount cash flows is generally called the discount rate
PV = CFt / (1+r)t OR PV = FVt / (1+r)t

A cash flow stream is a finite set of payments that an investor will receive or invest over time. The PV of the cash flow stream is equal to the sum of the present value of each of the individual cash flows in the stream. The PV of a cash flow stream can also be found by taking the FV of the cash flow stream and discounting the lump sum at the appropriate discount rate for the appropriate number of periods.
n

PV = S [CFt / (1+r)t]
t=0

The present value of an ordinary annuity can be viewed as occurring at the beginning of the first cash flow period, whereas the future value of an annuity due can be viewed as occurring at the end of the first cash flow period.

PVA = PMT * {[1-(1+r)-t]/r}

where

r = rate of return t = time period n = number of time periods PMT = payment CF = Cash flow (the subscripts t and 0 mean at time t and at time zero, respectively) PV = present value (PVA = present value of an annuity) FV = future value (FVA = future value of an annuity)

PRESENT VALUE OF MONEY-FM

PRESENT VALUE OF MONEY-FM