Business and Personal Finance Dictionary

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• PRESENT VALUE
  
  The present value of a future payment, sometimes called the time value of money, is what the money is worth now in relation to what you anticipate it will be worth in the future based on the interest you expect it to earn. For example, if you're earning 10% annual interest, $1,000 is the present value of the $1,100 you expect to have a year from now. The concept of present value is useful in calculating how much you need to invest now in order to meet a certain future goal, such as buying a home or paying college tuition. Many personal investment handbooks and online financial services sites provide tables and other tools to help you calculate these amounts based on different interest rates. Inflation has the opposite effect from interest on the present value of money, accounting for loss of value rather than increase in value. For example, in an economy with 5% annual inflation, $100 is the present value of $95 next year.
  
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