MBATricks

Tips and Tricks about my MBA experience

Finance :: Present Value – Single Sums

 

The Present Value for Single Sums allows to calculate the amount of money on the year 0 based on its future value and the interests rate. Note that Single Sums means that each yearly sum is independent from one year to the other (different from annuities).

 

(PV0)ss = (FV)ss * (PVIF)ss

 

where:

 

  • (PV0)ss – Present Value at time 0 (Single Sums)
  • (FV)ss – Future Value (Single Sums)
  • (PVIF)ss – Present Value Interest Factor (Single Sums) = 1/(1+i)^t
  • i = interest rate
  • t = time in year

 

For example:

If we know that we have a Future Value of 1000 USD after 3 years and that we had an interest rate of 6% this will give us:

(PV)0 = 1000 * (1/(1+6%)^3) = 839, 62

It means that if we invest 839,62 USD at a rate of 6% for we will have 1000 USD after 3 years.

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