The current market value of a real estate lot in Quezon City is about ₱ 40,000 per square meter. Moreover, market prices are expected to increase by 6% every year. Meanwhile, a special deposit account is offering to pay an interest rate of 7% compounded quarterly. How much should you invest now in order to be able to buy a 400 square meter lot 10 years from now?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.