Financial glossary

N

Net present value (NPV)

The net present value (NPV) of an instrument (bonds or equities) measures the sum of all its future cash flows’ present value. Each present value is calculated by discounting the cash flow expected value by the risk-free rate, plus a margin taking into account the risk associated with it. For instance, the NPV of a bond is the sum of all its coupons and principal repayments, discounted at the risk-free rate, plus the credit spread of the issuer.