**Present Value:**The value today of future sum of money or cash flow. Present Value can be calculated using the following formula:

PV = FV/(1+r)n

FV : Future Value

r : interest rate

n : number of time periods (years, months, weeks, etc)

The present value is always less or equal to the future value. The present value is the future value discounted.

Question: what is the present value of an investment profit of $900,000 which will be received two years from now knowing that the yearly interest rate is 12 percent.

PV = FV/(1+r)n

PV = $900,000/(1+ 0.12)2, or $717,475.

Note that interest rate is mostly yearly. However, you need to convert it to monthly if time periods are given in months.

Example: for the question above, what is the present value if the profit would be received 24 months from now?

Yearly interest rate is 12%

Monthly interest rate is yearly interest rate / 12, or 1%

n is 20 months

PV = $900,000 / (1 + 0.01)24, or $708,810