When you hear the term "present value", you might think that it's a simple and intuitive concept.
It might seem as simple as how much this investment is worth. If you buy a stock for ten cents per share, it's worth ten cents per share.
However, it's more complicated than that.
It's the absolute basis for pricing of stocks and bonds. In financial modeling, banking, insurance, lottery payments, and even pension funds, it arises as an important consideration.
Its basic meaning is that spending a certain amount today should yield a certain value in the future. It's the time value of money.
If you have some understanding of how a dollar works, you know that a dollar in 1950 doesn't buy the same amount of milk as it does in 2019.
Calculating Present Value
Present value is an imprecise science that can give you a sense of long and short-term growth, capital expenditures, and other factors.
These variables are hard to predict with precision, but given the data that's available, present value can be calculated to some degree.