Business enterprises borrow and invest large sums of money. Both of these types of transactions involve the use of present value calculations. A present value calculation is based on the concept of the time value of money. Would you rather be given $1,000 today or $1,000 a year from today? If you get the $1,000 today and invest it to earn 5% per year, the $1,000 will accumulate to $1,050 ($1,000 plus the $50 interest) one year from today. The $1,000 received today is the present value amount that is equivalent to the future amount of $1,050 one year from now.

Before we turn to a discussion of present value concepts, let’s first refresh our knowledge about the nature of interest.

• Nature of Interest
• Present Value of a Single Future Amount
• Table B-1: Present Value of 1
• Before You Go On
• Present Value of a Series of Future Amounts (Annuities)
• Table B-2: Present Value of an Annuity of 1
• Before You Go On
• Calculating the Present Value of a Bond
• Before You Go On
• Calculating the Present Value of Notes Payable
• Before You Go On
• Brief Exercises
• Solutions to Brief Exercises