i = Threshold interest rate or discount rate per period n = Number of periods over which the value is calculated PV may be considered the determination of the sum of money that would have to be invested at a given interest rate per year to yield a specified amount at a specified future date. For example, if the annual interest rate were 10%, the PV of $1,000 to be received at the end of a period of 10 years would be calculated as:



i = Threshold interest or discount rate per period n = Period in which the future amount is earned

For any given discount rate, the PVF can be identified from a standard compound interest table or calculated. For example, given a discount rate of 10%, annual PVFs or discount factors over a three year period would be calculated, based on Equation 42-5, as:

Year 2

Year 3


+ 0.10)1


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Guide to Alternative Fuels

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