What is present value?

Present value (PV) is what a future sum of money is worth today, given a specified rate of return (discount rate). $10,000 five years from now is worth less than $10,000 today because you could invest today's money and earn a return. At a 7% discount rate, $10,000 in 5 years = $7,130 today. PV is the foundation of investing, valuation, and financial decision-making.

What discount rate should I use?

The discount rate represents your opportunity cost — what you could earn elsewhere at similar risk. Common benchmarks: risk-free rate ~5% (US Treasury), stock market ~10% (S&P 500 historical average), corporate hurdle rate 10–15%, real estate 6–12%. For personal decisions, use the rate you'd realistically earn on an alternative investment with similar risk.

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