Time value of money

Present Value of Money (PV) :
Time and money value is internally related with each other. It is very important to take into consideration time factor when investing any amount. Present value of money, helps the investor to chose the project and compare with other options which gives more return from the investment.
Present value of money which indicate the todays money value of future amount.
For example: If you lend 100 euro to some borrower who will give you 110 euro after 2 years. Now you can calculate this 110 euros todays value.

Formula to find out the present value of money:

PV = FV*(1+ i )^-n

or

PV = FV / (1+ i)^n

or
we can use present value table

where, PV = Present value
           FV = Future Vaule
            i = Interest rate
           n = no of year

Example:
100 euro is giving 110 euro after 2 years
 where bank Interest rate is 6% . chose which project is profitable?
PV = 110 * (1+ 6%)^-2
PV = 97.89

This calculation shows that according to bank interest rate you are losing money. 110 euro is valuated 97.89 euro in present. So, the investor should invest the amount in the bank.

See the video to get more concept about present value of money (PV)

http://www.youtube.com/watch?v=zR3L5mLTi7s