Present Value Calculator

The Value of Money Today

Present Value (PV) tells you what a future sum of money is worth today, given a specific rate of return (or discount rate). This concept is fundamental to finance and investing, as it helps you compare the value of money across different points in time. Our calculator finds the PV of a future value.

The Present Value Formula Explained

PV = FV / (1 + r)ⁿ

• PV (Present Value): The value of the future sum in today's dollars.
• FV (Future Value): The amount of money you will have in the future.
• r (Discount Rate): The annual rate of return or interest rate.
• n (Number of Years): The number of years until you receive the money.

How to Use the Calculator

1. Future Value: Enter the amount of money you will receive in the future.
2. Discount Rate (%): Input the annual interest rate or rate of return.
3. Number of Years: Enter how many years away the future value is.

Real-World Example

You are promised $10,000 in 5 years. Assuming a discount rate of 7% per year (which you could have earned by investing the money elsewhere), what is that promise worth today?

• FV: $10,000
• r: 0.07
• n: 5
• Calculation: PV = 10000 / (1 + 0.07)⁵ = 10000 / 1.40255 ≈ $7,129.86
• The present value of $10,000 in 5 years is approximately $7,129.86 today.

Frequently Asked Questions (FAQ)

• What is a 'discount rate'? The discount rate represents the rate of return you could earn on an investment with similar risk. It's also known as the 'opportunity cost' of not having the money today.
• Why is present value important? It allows for an apples-to-apples comparison of cash flows that occur at different times. It's a foundational concept for business valuation, bond pricing, and financial planning.
• How does the discount rate affect present value? A higher discount rate will result in a lower present value, because the opportunity cost of not having the money today is higher.