How to Calculate Present Value Calculator
What is Present Value Calculator?
A present value calculator discounts a future cash flow or annuity back to its current worth, accounting for the time value of money at a given discount rate.
Formula
PV = FV / (1 + r)ⁿ; PV of annuity = PMT × [(1 − (1+r)⁻ⁿ) / r]
- PV
- Present Value (currency)
- FV
- Future Value (currency)
- r
- Discount rate (%)
- n
- Time periods
Step-by-Step Guide
- 1PV = FV / (1 + r)ⁿ
- 2PV of annuity = PMT × [1−(1+r)^−n] / r
- 3Higher discount rate = lower present value
- 4Used for investment decisions, bond pricing, and project appraisal
Worked Examples
Input
Receive $5,000 in 5 years, discount rate 6%
Result
PV = $5,000 / 1.06⁵ = $5,000/1.3382 = $3,736
Frequently Asked Questions
What's the time value of money?
$100 today > $100 in 5 years. Can invest today's money and earn returns.
What discount rate should I use?
Often your cost of capital or expected return. 5-10% typical for personal finance. Business: WACC.
How is PV used in investing?
Evaluate if future cash flows justify today's cost. If calculated PV > cost, invest. If < cost, reject.