This is the difference between the two.

Anyway.

But the present value, what does that mean?

Then to discount money in the future to the present, we divide it by 1 plus the discount rate so this is a 5 discount rate.

Add that together with the gas, and it's 112,000 per year, just for that sign in each direction.

But if you were to present value this let's say they make 1 forever going into the future and you were to present value this using a discount rate.

What's the present value of 50 in 1 year?

Hopefully people will be watching this in the next millenia.

That is 100.

We'll now learn about what is arguably the most useful concept in finance and that is called the present value.

So once again we have verified, by taking the present value of 110 in 2 years to today, that its present value if we assume a 5 discount rate.

But that's just 1.02 divided by 1, which is just 100. 100 today.

42 million in adjusted dollars. That's minus payload, of course.

To compound the amount of money we invest we multiply the amount we invest times 1 plus the yield.

let me just scroll down so let's say that one year so today, one year so we figured out that 110 a year from now, its present value is equal to so the present value of 110 is equal to 104,76.

Well, we said let me do that in a different color.

Present value of 100 today is 100.

Present value

Present values

So that's where it comes from.

So how do you compare the two?

Current Value

Current value

But the big learning from this is how dependent the present value of future payments are on your discount rate assumption.

So that is the value in 2 years.

Get out my virtual Tl 85.

This dollar would be 1.11 to the third.

And the notation is PV

Choice number three, the 20 today, the 20 now, well that's just worth 20.

And then to get its present value, its value today, you divide that by 1.05 again.

When any two girls are matched up, there's an expectation of which will win based on their current rating, right?

Something interesting is emerging.

So it equals 104,76.

Why is that?

Well that's just 50 divided by 1.05, plus the present value of our 35 payment.

And I'll introduce my notation.

When you lower the interest rate, the present value of this future payment goes up.

Actually I meant to present value it.

110 divided by 1.05 squared is equal to 99.77.

So the present value of 20 today, well that's just 20.

Just like we did here.

So already you've made the decision.

We could have said Let y equal the discount

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