Present value is the value of an investment (future stream of income) today.

The higher the interest rate, the lower the present value. Use the following equation when one future payout needs to be calculated.

where X = future payment,

i= interest (discount) rate, and

n = years before payment is made.

Would you rather take a lump sum of $372 million or 30 annual payments of $25 million if the current interest rate is 6%?

Use the present value equation to calculate the present value of the $750 million in 30 annual installments, given the interest rate of 6% to answer this question.Use the formula below.

n PV = > X t=1 (1 + i)t