Present value is the concept that states an amount of money today is worth more than that same amount in the future. In other words, money received in the future is not worth as much as an equal amount received today.

For example, if an investor receives $1,000 today and can earn a rate of return 5% per year, the $1,000 today is certainly worth more than receiving $1,000 five years from now. If an investor waited five years for $1,000, there would be an opportunity cost or the investor would lose out on the rate of return for the five years.