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Can you respond to this student 100 words.
Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows. Future value is the amount of money that an original investment will grow to be, over time, at a specific compounded rate of interest.
For a future value of 1000000 dollars the present value calculation would be
PV= 1000000/(1+.08)300 = 146,017.90
The ability to calculate the future value of an investment is a worthwhile skill. It allows you to make educated decisions about an investment or purchase regarding the return you may receive in the future. The power of compounding is one of the most important tools that investors have at their disposal. Thanks to compounding, even small amounts of money can grow into huge savings over the long haul. By knowing how to calculate the impact of compounding on a lump sum given a projected interest rate, you can have a better sense of just how far your savings might go in the future.