Present Value Calculator
Calculate the current worth of future money or payment streams. Understand how much future dollars are worth today based on the time value of money and discount rates.
Single Future Amount
Present Value Results
Present Value Today
$6,139.13
Future Value
$10,000.00
Total Discount
$3,860.87
Discount Percentage
38.61%
Value Growth Over Time
Understanding Present Value
What is Present Value?
Present value (PV) is a core financial concept that represents the current worth of a sum of money to be received in the future. It's based on the principle that money available today is worth more than the same amount in the future due to its potential earning capacity.
This concept is fundamental in investment analysis, bond pricing, loan calculations, and capital budgeting decisions. By discounting future cash flows, you can compare investment opportunities on equal terms.
Key Factors
- Future Value: The amount you expect to receive
- Discount Rate: The rate used to discount future cash flows
- Time Period: How far in the future the payment occurs
- Compounding: How frequently interest is calculated
- Payment Type: Single sum or series of payments
The Present Value Formula
Single Future Amount
PV = FV / (1 + r/n)nt
PV = Present Value
FV = Future Value
r = Annual discount rate (decimal)
n = Compounding periods per year
t = Number of years
Present Value vs Future Value
While future value asks "how much will my money grow to?", present value answers "how much is that future amount worth today?" These are inverse calculations — if you know the FV formula, you can derive PV by solving backward.
Example
Receive $10,000 in 5 years at 6% discount rate:
PV = $10,000 / (1.06)5
PV = $10,000 / 1.3382
PV = $7,473
That $10,000 payment is worth $7,473 today.
Why Discount Rate Matters
$10,000 in 10 years with different rates:
Higher discount rates dramatically reduce present value.
Types of Present Value
Single Sum PV
Calculates the present value of one future payment. Used for lump-sum investments, bond face values, or any one-time future receipt.
Example: What's $50,000 in 10 years worth today?
Ordinary Annuity PV
Present value of equal payments made at the END of each period. Common for regular income streams like rental payments.
Example: $1,000/month for 5 years received at month-end
Annuity Due PV
Present value of payments made at the BEGINNING of each period. Results in slightly higher PV than ordinary annuity.
Example: Lease payments due at start of each month
Practical Applications
Investment Decisions
Compare investment opportunities with different cash flow timings. Calculate Net Present Value (NPV) by summing the PV of all future cash flows minus the initial investment. Positive NPV = good investment.
Bond Valuation
A bond's fair price is the PV of all future coupon payments plus the PV of the face value. When market rates rise above the coupon rate, bond prices fall (and vice versa).
Lottery Winnings
A $1 million lottery paid over 20 years is worth far less today. Understanding PV helps you compare lump-sum vs. annuity options and make better financial decisions.
Legal Settlements
Courts use present value to determine fair settlements for future lost wages, medical costs, or damages. PV ensures fair compensation when payments occur over time.
Choosing the Right Discount Rate
The discount rate is crucial and depends on your specific situation:
Risk-Free Rate
Use Treasury rates (4-5%) for guaranteed future payments
Opportunity Cost
Use your expected investment returns (7-10%) for comparison
Cost of Capital
Businesses use WACC (8-15%) for project evaluation
Inflation Rate
Use 2-3% to convert nominal to real (purchasing power) values
Frequently Asked Questions
Why is present value always less than future value?
Money today has earning potential — you can invest it and earn returns. Because of this opportunity cost, a dollar today is worth more than a dollar in the future. The discount rate represents this time value of money.
What's the difference between discount rate and interest rate?
They're mathematically equivalent but used in different directions. Interest rate grows present money forward to future value. Discount rate brings future money backward to present value. Same rate, opposite perspectives.
How do I account for risk in present value?
Use a higher discount rate for riskier cash flows. Safe government bonds might use 3%, while risky business ventures might use 15-20%. The risk premium accounts for the uncertainty of actually receiving future payments.
Important Disclaimer
This calculator provides estimates based on your inputs and assumes constant discount rates. Real-world discount rates change over time, and future payments may carry risk of non-payment. Consult a financial advisor for significant financial decisions. This tool does not account for taxes, fees, or inflation unless explicitly factored into your chosen discount rate.