When solving time value of money problems, it can sometimes be helpful to establish a time line. For example, consider an investment that will pay 1,000 in 1 year, 1,100 in 2 years, and 1,200 in 3 years. With an interest rate of 3% annually we can visualize this as follows.
|Present value||Discount factor||Year 1||Year 2||Year 3|
The total present value is 3,105.90.