Question

A real life example of present value

Answer 1

​​​​​​Understanding of present value of money with real life example :

- Present value is the value right now or current value of something which have some future money value.

- Always remember one thing that, one dollor today is worth more than dollor tomorrow.

- Lets go with some example, For suppose you are planning to purchase a car worth $100000 within 6 months and at present you have a $80000 with you and you need additional $20000 within 6 months. One of the friend of yours came to you and offered to give you $100000 at the end of the 6 months from now if you lend him $80000 now. The 6 months time period earns you interest of $20000 which helps you to purchase the car. So, the present value of the car worth $100000 is $80000 now, as it was evident clearly in the example.

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