Present Value Calculator
Calculate what a future amount of money is worth today. Present value discounts future cash flows back to today's dollars using a required rate of return — the foundation of all valuation and capital budgeting decisions.
What Is Present Value?
Present value (PV) is what a future sum of money is worth today, given a required rate of return. The core idea: money received in the future is worth less than money received today, because today's money can be invested and grow. $1,000 today is worth more than $1,000 in 5 years — how much more depends on the interest rate you could earn.
Present value is the inverse of future value. It is used throughout finance: pricing bonds, valuing stocks (DCF analysis), evaluating investment projects (NPV), and comparing cash flows that arrive at different times.
Present Value Formula
PV = FV ÷ (1 + r)ⁿ
- FV — future value (the amount you will receive)
- r — discount rate (as a decimal; often required return)
- n — number of periods (years)
The quantity 1 ÷ (1 + r)ⁿ is called the discount factor. It is the value of $1 received in n years, at discount rate r.
The total discount is FV − PV — the amount you "lose" by receiving the money in the future instead of today.
Worked Example
You will receive $15,000 in 5 years, and your required return is 8%:
PV = $15,000 ÷ (1.08)⁵
PV = $15,000 ÷ 1.4693 = $10,206.25
Discount factor = 1 ÷ 1.4693 = 0.6806
Total discount = $15,000 − $10,206.25 = $4,793.75 (31.96% of future value)
Interpretation: if you could invest $10,206.25 today at 8%, you would have $15,000 in 5 years. So receiving $15,000 in 5 years is equivalent to receiving $10,206.25 today.
Effect of Discount Rate on PV
The higher the discount rate, the lower the present value — a 1% change in discount rate can materially affect the result over long periods. For a $15,000 future value in 5 years:
- At 3% — PV = $12,939 (discount factor 0.8626)
- At 5% — PV = $11,753 (discount factor 0.7835)
- At 8% — PV = $10,206 (discount factor 0.6806)
- At 12% — PV = $8,511 (discount factor 0.5674)
- At 20% — PV = $6,028 (discount factor 0.4019)
This is why interest rates matter so much in finance: a 2% change in the required return can swing the value of a long-dated cash flow by 10–30%.
Frequently Asked Questions
What is the difference between present value and future value?
Future value compounds today's money forward to see what it will be worth later. Present value discounts future money back to see what it is worth today. They are inverse operations: FV = PV × (1 + r)ⁿ and PV = FV ÷ (1 + r)ⁿ. Both are essential in financial planning and valuation.
What discount rate should I use?
The discount rate should reflect the risk of the cash flow. For a risk-free future payment (like a government bond), use the risk-free rate. For a stock, use the expected return from CAPM or WACC. For a business project, use the company's WACC. Higher-risk cash flows require a higher discount rate, which means a lower present value.
Why is future money worth less than today's money?
Because money received today can be invested and grow. If you can earn 8% per year, $10,206 today will be worth $15,000 in 5 years. So a promise of $15,000 in 5 years is only worth $10,206 today. Additionally, future money carries risk — inflation, default, and uncertainty all reduce its value in today's terms.
Can present value be higher than future value?
No — not with a positive discount rate. Because discount factors are less than 1 (for r > 0), PV is always less than FV. The only case where PV equals FV is when the discount rate is zero. If a calculation ever produces PV > FV, it means the discount rate is negative (a rare scenario, only in deflation or negative interest rate environments).
Does present value account for inflation?
Not automatically. This calculator produces nominal present value — based on nominal discount rates. To get real (inflation-adjusted) present value, use the real discount rate: nominal rate minus inflation. If the nominal rate is 8% and inflation is 3%, use 5% as the real rate. Real PV shows what the future money is worth in today's purchasing power.
How does present value relate to NPV?
NPV (Net Present Value) is the sum of present values of all future cash flows minus the initial investment. Present value is the building block — each cash flow is discounted to its PV, then all PVs are summed and the initial investment is subtracted. So PV is a single calculation; NPV is what you get when you apply PV to every cash flow in a project.