Present Value of $1

The Present Value of $1 (also called the Reversion Factor) is the current value of a lump sum to be received at some time in the future. The lump sum is discounted to an equivalent current value by a discount rate based on the premise that a lump sum received sooner is more valuable than a lump sum received later.

The Present Value of $1 factor is generally column 4 of the compound interest table. It may be labeled Present Worth of $1.

To calculate the amount that must be deposited in the sinking fund, multiply the amount of the desired future amount by the factor from the appropriate compound interest table.

Example:

Roger will receive $10,000 at the end of 5 years. Assuming a discount rate of 7%, what is the current value of the lump sum to be received in the future?

$10,000 is the lump sum to be received in the future. Using the discount rate of 7% estimates the today's value of the lump sum.

An Appraisal Application:

Roger owns land that he believes will be worth $100,000 in 5 years. Assuming a discount rate of 6%, what is the value of the land now.