Net Present Value If an asset pays off a stream of payoffs over multiple time periods, then we can use a discount rate to calculate the value to the consumer of a entire sequence of payoffs Most generally, enumerate each discrete time period (e.g. year, month, day) by the index where today is =0 and the asset lives for periods List the payoff at each time period as , which we will assume, for now, is known in advance Then if the discount factor is 0, the consumer "values" the payoff delivered at time as 1(1+) where we note that if =0, the value is just the current payoff 0 Using this logic, we can write an expression for the value of the entire sequence of payoffs with a sum 0==0(1/1+) Now suppose a student graduating from high school is considering whether to continue with post-secondary education, they may consider that it gives them higher paying jobs in the future, but requires that they don't begin working until after graduation Consider the simplified example where a student has perfectly forecastable employment and is given two choices: 1. Begin working immediately and make $40,000 a year until they retire 40 years