Present value Present dollars into the future Suppose you invest $100 today in the bank At the end of year 1, it is worth(1+ 05)X$100 or$105 At the end of year 2, it is worth(1+05)x$105, or$11025 The interest compounds over time. that is the interest is also earning interest4 Present Value: Present Dollars into the Future • Suppose you invest $100 today in the bank – At the end of year 1, it is worth (1+.05)x$100, or $105 – At the end of year 2, it is worth (1+.05)x$105, or $110.25 – The interest compounds over time, that is the interest is also earning interest