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Capital Markets Glossary

A short explanation of commonly used terms, used in these courses

Net Present Value

The NPV of a trade means a netted single value of all future cashflows, discounted backwards in time to today. A cashflow due in 5 years time can be discounted backwards to a cashflow today which assumes reinvestment to achieve that future value in 5 years.

For example - receiving $100 in 5 years time, can be discounted back to a payment of $96 today, assuming you earn compound interest each year on the $96. (real interest rates determine the actual payment now, $96 is made up)