Which financial concept explains how much future money would be worth if received today?

The concept that explains how much future money would be worth if received today is known as present value. This financial principle helps to determine the current worth of a sum of money that is expected to be received or paid in the future, taking into account a specific rate of return or discount rate. In essence, present value reflects the fact that money today has greater purchasing power than the same amount of money in the future due to the potential for earning interest or investment returns over time.

In practical terms, present value is a vital tool in finance for comparing the worth of cash flows at different points in time, allowing for more informed decision-making regarding investments, loans, and overall financial planning. It is closely tied to the concept of time value of money, which underscores that the timing of cash flows affects their value.

Future value, on the other hand, focuses on how much an investment made today will grow into over time, assuming a certain interest rate. Net present value combines present and future value concepts to assess the profitability of an investment by accounting for both incoming and outgoing cash flows. Account value refers to the current value of an account, typically in banking or investment scenarios, but does not directly relate to the calculations of future cash flows.