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Explain what Present Value and Future Value are in you own words. What is the difference...

Explain what Present Value and Future Value are in you own words. What is the difference between the Present Value of $ and the Present Value of an Annuity? What is a perpetuity?
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Answer #1

The present value is the value of an investment today.

PV = A / (1 + r)^n

The future value is the value of an investment in the future.

FV = A (1 + r)^n

The present value of a sum of money, is the current value of a future stream of money given at a specified rate of return.

The present value of an annuity, is the sum that has to be invested today to guarantee a desired amount of money in the future.

A perpetuity is a stream of cash flows that lasts till infinity/perpetuity.

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