present discounted value

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The present value of a payment due to be received in the future. If a payment of amount A is due t periods into the future and the proportional interest rate remains constant at r per period, the present discounted value is given by

V = A/(1 + r)t = A(1 + r)t.

The present discounted value of a stream of receipts spread over time is the sum of the present discounted values of the various parts of the stream. See also discounted cash flow.

Subjects: Economics.

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