Present Value Calculator
Calculate the present value of a future sum of money.
Examples
Investment Decision
Lottery Winnings
Frequently Asked Questions
What is the time value of money?
What discount rate should I use?
What is a discount factor?
Quick Tips
- •The higher the discount rate, the lower the present value.
- •More frequent compounding results in a slightly lower present value.
- •Use the risk-free rate (e.g., Treasury bond yield) for low-risk calculations.
- •Present value is essential for comparing cash flows occurring at different times.
How to Use This Calculator
Enter the future value you expect to receive, the annual discount rate, the number of years, and the compounding frequency. Click Calculate to see the present value, the discount factor, and a year-by-year breakdown showing how value decreases over time.
Understanding the Formula
PV = FV / (1 + r/n)^(n*t). Where PV = present value, FV = future value, r = annual rate, n = compounding frequency, t = years. Discount Factor = 1 / (1 + r/n)^(n*t).
Examples
Investment Decision
If someone offers you $10,000 in 10 years and the discount rate is 5%, the present value is about $6,139. You should pay no more than that today.
Lottery Winnings
A $1,000,000 payment in 20 years at 7% discount rate has a present value of about $258,419.
Frequently Asked Questions
What is the time value of money?
Money available today is worth more than the same amount in the future because it can be invested to earn returns. Present value quantifies this difference.
What discount rate should I use?
Use the rate of return you could earn on an alternative investment of similar risk. Treasury rates for low-risk, market returns for higher-risk scenarios.
What is a discount factor?
A multiplier (between 0 and 1) that converts a future value to its present value. Multiply FV by the discount factor to get PV.