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Finance GlossaryNet Present Value (NPV)
Net Present Value (NPV)
Definition of Net Present Value (NPV)
Net Present Value (NPV) is a technique that assesses whether an investment is worthwhile by discounting future cash flows to today’s value and weighing them against the upfront cost. If the result is positive, the project is likely to add value; a negative result signals potential loss.
Related Terms
Standard Deviation
Standard deviation is a metric that shows the extent to which the returns on investment of a stock fluctuate around its average. When the standard deviation is higher, it indicates higher risk and volatility. On the contrary, a lower standard deviation indicates that the returns are more stable. Investors use this metric to understand the predictability of an asset and compare risk levels between investments or portfolios.
Futures and Options
Futures and options are derivative contracts that derive their value from one or more underlying financial securities like stocks, bonds, interest rates, currencies, and commodities.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
Every futures and options contract contains an expiration date and a price for the underlying that’s pre-agreed. Futures are a right and an obligation whereas options are a right but not an obligation to exercise the terms of the contract.
Holding Period
The holding period of a financial security is the time period between buying and selling the said security. It is the total amount of time for which the security has been held in the portfolio of an investor. At times, there’s a mandatory holding period attached to a security. During this mandatory holding period, the security can not be sold.
Tracking Error
Tracking error measures how closely a portfolio or fund follows the performance of its benchmark index. It represents the volatility of the difference between fund returns and benchmark returns. A lower tracking error indicates closer alignment, while a higher tracking error suggests greater deviation due to costs, strategy, or holdings.
Undervalued
A stock is considered undervalued when its market price is lower than its intrinsic or fair value based on fundamentals such as earnings, cash flow, or assets. For example, if a company with strong profits and stable growth trades below its historical valuation multiples, investors may view it as undervalued and expect price appreciation.
BSE
Bombay Stock Exchange or BSE is a stock exchange that allows companies to issue new securities through IPOs or FPOs and enables traders & investors to buy and sell securities like shares and ETFs. Established in 1875 under a banyan tree in Mumbai, BSE is the oldest stock exchange in India and Asia.
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