How Do You Calculate Real Present Value?
The real present value is a figure that represents the actual value of the future cash flow for a business or investment in today’s terms. The “real” term usually refers to the fact that the real rate of return, which factors in inflation, should be used as opposed to a nominal rate (which doesn’t recognize inflation). This is a calculation that economists, investors and analysts use to make important decisions regarding money. Determine the amount of cash flow you expect to receive. For example, if you purchase a baseball card that industry experts say will be worth $1,000 in a certain number of years, the cash flow is $1,000. It is a realistic projection backed by research or an industry expert. We’ll use this figure ($1,000) in this example. Find the real rate of return for your cash flow. This is the annual rate of return on your investment (determined by the fund, bank, company or industry data) minus the current annual inflation rate. You can find updated inflation rate informati
