Present value
The value of something now. Of particular interest when that “something” is a financial obligation that falls due in the future. The present value of my promise to pay you £10 in a year’s time is something less than £10.
Why? For one thing, because you have to wait for a year without that money. If you wanted to replace that money, by borrowing it, you would have to pay interest on it. Call this the “funding cost”. For another, until I actually pony up the cash, you are my creditor, and if I go bust, you may not ever get that £100. Call this the “credit risk”.
Think of it another way: imagine you loaned me £10, for a year, without interest. You would never do that, right? This is why a zero-coupon bond issues at a discount. it doesn’t pay interest, so instead you buy at a discounted price which implies the interest rate you would be prepared to pay.
Careful book-keepers therefore discount the value of future cashflows back, by reference to an implied interest rate, to find their present value.