sum of money are not worth the same at different time periods.
The present value of any future sum of money is the amount today that would be needed, at current interest rates, to produce that future sum.
- Useful for companies when evaluating investment project.
Future value is the amount of money in the future that an amount of money today will yield, given prevailing interest rates.
Compounding is where interest earned remains in the account to earn additional interest in the future.