CALCULATING PRESENT VALUE LESSON PLAN TEACHING MONEY CONCEPT LEARNING FINANCE ECONOMIC PRINCIPLES BUSINESS MATH ACTIVITY SAMPLE EXAMPLE HELP STUDENTS PRACTICE TEACHER FINANCE SKILLS ONLINE COURSE

 Students learn about the financial concept of present value.

PRESENT VALUE

Topic:  Present Value Calculation

Concept:   Understand the concept of present value and how it is used to determine the value of future cash in today’s dollars.

Present Value

The single most important idea in finance is present value.  Investments that we make today produce revenue in the future.  Present value tells us how much the prospect of future income is worth in today’s dollars.  It does this by accounting for the time value of money.

Objectives

1. Understand the concept of present value
2. Understand the factors that are used in the PV formula
3. Know how to use the PV formula
4. Understand NPV
5. Understand the factors that are used in the NPV formula
6. Know and use the formula for NPV
7. Understand opportunity cost of capital

CALCULATE PRESENT VALUE LESSON PLAN

Teaching Materials

• Lesson - Present Value (see below for printable lesson)

• Many pre-calculated interest examples

Lesson Activity

1. What is PV?
• Discuss the concept that a dollar today is worth more than one dollar tomorrow

2. Why do we calculate it?
• Bring in real life examples
1. Real estate investments
2. Investment in bills
3. Investment in bonds

3. Discuss rates of return
• Why look at comparable investments?

4. Introduce PV formula

5. Discuss the separate factors
• Cash flow in one year
• Discount rate, r
• Discount factor

6. Discuss NPV
• NPV = PV – required investment
• Formula
• Why C0 is negative

7. Present idea of opportunity cost
• Bring in examples
• Have students think of their own examples

Assessment/Evaluation
Have students complete worksheet. A passing grade is 70% or greater.

Print out the teaching lesson pages and exercise worksheets for use with this lesson:

 PRESENT VALUE LESSON Lesson and worksheet. Do you have a recommendation for an enhancement to this finance and economics lesson, or do you have an idea for a new lesson?  Then please leave us a suggestion. Back to more Basic Finance and Economics Lessons, Lesson Plans, and Worksheets       For teaching and learning general money skills, personal finance, and money management, please go to the Money Instructor home page.

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