Today, you have $30,000 to invest. Two investment alternatives are available to you. One would require you to invest your $30,000 now, the other would require the $30,000 investment two years from now. In either case, the investments will the end five years from now. The cash flows for each alternative are

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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.