Present value in Power BI
1. Present value in Power BI
Hello, and welcome back! In this screencast we will review present value. As you will see, finding present value in Power BI is very similar to finding future value. Let’s say that Spaero's CEO is saving for their newborn child's college fund. They think investing monthly is too much work, so just want to make a one-time payment. They want to know how much will they need to save today to have $100,000 18 years from now, based on a money-market account that earns 2% annually, or stocks that earn 10% annually. And we need to compound these numbers daily. For this problem, we’ll solve for both the 2% and 10% investment options to see how the different discount rates impact the amount needed upfront Creating a new measure called College 2%, we’ll use the present value function. For our rate, we’ll use point 02 and we'll divide it by 365 to get our daily interest rate. For the number of periods, we’ll multiply 18 by 365 to also get the total number of days the investment will compound for. Since the CEO is not making payments, we can put zero for payment. The future value is the savings goal of $100,000, and there is no need to input anything for type. Great! Let’s add this measure to our multi-row card to see how much the CEO would need to invest now with this option. Now let’s copy the measure and create a new one. Change the name to College 10%, and the rate to point 1. We’ll let it load and then add it to our multi-row card. Wow! What a big difference that 10% makes compared to the 2%. Now let’s look at an example with annuities. Remember that annuities are fixed payments made over time. One of the most fun ways to illustrate this is through a lottery example! Lotteries usually offer an annuity option or a lump sum. But be careful! They're not worth the same. Should you take the lottery lump sum of $428mm today or annuity payments of $30mm annually for 30 years at a discount rate of seven and a half percent assuming the first payment starts today? Upfront, this may seem like an obvious answer. 30 million each year for 30 years is 900 million dollars! That’s more than double the lump sum payout. But remember the time value of money – it would take you 30 years to receive all of that cash, whereas you could get 428 million dollars today. So, what’s it going to be? Well, let’s do some math! First, we'll create a new measure called “Lottery” using the present value function. Our rate will be point 075, the periods will be 30 years, and the payment will be negative 30 million. Since there will be no money left after the 30 years is over, future value should be zero. The payments start today, so the type needs to be one. We’ll add this to a card, and we’ll find that the annuity is only worth 380 million dollars when the cash flows are discounted, so you would be better off taking the lump sum in this example. Nice work! We used present value to make good investment decisions! Now it’s your turn to try this in some exercises.2. Let's practice!
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