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FinanceTime Value of Money
A dollar today is worth more than a dollar tomorrow.
Money can be invested to earn a return, so future cash must be discounted to compare it with present cash. This single idea underlies NPV, bond pricing, loan amortisation, and valuation. The discount rate captures both time and risk.
Formula / theory
PV = FV / (1 + r)^n FV = PV · (1 + r)^n
In Python
pv = fv / (1 + r)**n fv = pv * (1 + r)**n
In SQL
SELECT future_value / POWER(1 + 0.05, years) AS present_value FROM cash_flows;