Investing · Lesson Plan
Present Value
Present value is the single most important idea in finance: a dollar today is worth more than a dollar tomorrow, because today’s dollar can be invested and earn interest. This lesson teaches the present-value formula using the discount factor and a comparable rate of return, then shows how present value decides whether an investment is worthwhile — leading directly into net present value.
For Teachers
Lesson at a glance
- Topic
- Investing
- Grade Level
- Grades 11–12 / College
- Resource Type
- Lesson + Worksheet
- Estimated Time
- 45–60 minutes
- Format
- Lesson + worked examples
- Materials
- Printable lesson, worked examples, calculator
What Students Learn
Learning objectives
- Explain the time value of money
- State and apply the present-value formula
- Use the discount factor and a comparable rate of return
- Decide whether an investment is worthwhile from its present value
- Connect present value to net present value
Materials
What you’ll need
- Printed lesson with worked examples (one per student)
- Calculator
- Scratch paper
- Whiteboard
Key Terms
Vocabulary
- Present value (PV)
- What future income is worth in today’s dollars.
- Time value of money
- The principle that money today is worth more than money later.
- Discount factor
- The reciprocal of one plus the rate of return.
- Rate of return
- The percentage gain expected on a comparable investment.
- Cash flow
- Money received from an investment in a future period.
- Net present value (NPV)
- Present value minus the required investment.
For Teachers
Lesson plan
Estimated time: one 45–60 minute class period.
Lesson sequence
- The big idea (10 min). Why a dollar today beats a dollar tomorrow — the time value of money.
- The formula (15 min). Build PV = discount factor × C₁ and work the $5,000-in-one-year example.
- Is it worth it? (12 min). Use present value to judge an investment’s cost vs. worth.
- Bridge to NPV (8 min). Introduce NPV = PV − required investment with the worked example.
Assessment
Assess practice problems for correct present-value calculations and sound invest/don’t-invest decisions.
Discussion
Discussion questions
- Why is a dollar today worth more than a dollar a year from now?
- What does the present-value formula calculate?
- How does the rate of return affect present value?
- How do you use present value to decide whether to invest?
- How does present value relate to net present value?
Printable Lesson & Worked Examples
Present Value — Lesson & Worked Examples
A printable financial-math lesson on present value and the time value of money, with the present-value formula and worked invest/don’t-invest examples.
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