Editing Present value (section)

===Present value of a lump sum===
The most commonly applied model of present valuation uses [[compound interest]]. The standard formula is:

:<math>PV = \frac{C}{(1+i)^n} \,</math>

Where <math>\,C\,</math> is the future amount of money that must be discounted, <math>\,n\,</math> is the number of compounding periods between the present date and the date where the sum is worth <math>\,C\,</math>, <math>\,i\,</math> is the interest rate for one compounding period (the end of a compounding period is when interest is applied, for example, annually, semiannually, quarterly, monthly, daily). The interest rate, <math>\,i\,</math>, is given as a percentage, but expressed as a decimal in this formula.

Often, <math>v^{n} = \,(1 + i)^{-n}</math> is referred to as the Present Value Factor <ref name=Broverman>{{cite book|last=Broverman|first=Samuel|title=Mathematics of Investment and Credit|year=2010|publisher=ACTEX Publishers|location=Winsted|isbn=9781566987677|pages=4–229}}</ref>

This is also found from the [[Future value#Compound interest|formula for the future value]] with negative time.

For example, if you are to receive $1000 in five years, and the effective annual interest rate during this period is 10% (or 0.10), then the present value of this amount is

:<math>PV = \frac{\$1000}{(1+0.10)^{5}} = \$620.92 \, </math>

The interpretation is that for an effective annual interest rate of 10%, an individual would be indifferent to receiving $1000 in five years, or $620.92 today.<ref name="Moyer"/>

The [[purchasing power]] in today's money of an amount <math>\,C\,</math> of money, <math>\,n\,</math> years into the future, can be computed with the same formula, where in this case <math>\,i\,</math> is an assumed future [[inflation rate]].

If we are using lower discount rate(''i'' ), then it allows the present values in the discount future to have higher values.