Consider a situation, where (a) the equal-payment cash flow of $1,500 in constant dollars over three years is converted from the (b) equal-payment cash flow in actual dollars over three years. at an annual general inflation rate off= 4%. Also, i = 8.5%. What is the amount A in actual dollars equivalent A' = $1,500 in constant dollars?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.