Present Value Calculator

About Present Value Calculator

Present value tells you what a future amount is worth today, given a discount rate. Essential for financial decisions.

How to use this calculator

1. Enter the future value, or the amount you expect to receive later.
2. Enter the discount rate as a decimal or percent, depending on the calculator format.
3. Enter the number of periods until you receive the money.
4. Click calculate to find the present value.

The formula explained

The formula computes how much a future amount, \(FV\), is worth today, \(PV\), after being discounted by a rate \(r\) for \(n\) periods. A larger rate or more periods makes the present value smaller.

• PV = present value, the value today
• FV = future value, the amount received later
• r = discount rate per period
• n = number of periods until payment

Step by step method

1. Write down the future amount, the rate, and the number of periods.
2. Compute \((1+r)^n\) to find the discount factor.
3. Divide \(FV\) by that discount factor to get \(PV\).

Worked example

Problem. You will receive \(\$1,000\) in 3 years, and the discount rate is \(5\%\) per year. What is the present value?

1. Substitute into the formula: \(PV = \frac{1000}{(1+0.05)^3}\).
2. Calculate the denominator: \((1.05)^3 = 1.157625\).
3. Divide: \(PV = \frac{1000}{1.157625} \approx 863.84\).

Tips and common mistakes

• Make sure the rate and the time period match, for example yearly rate with years, monthly rate with months.
• A higher discount rate lowers present value, and a longer wait does too.

Frequently asked questions