Present Value Calculator
Calculate how much a future sum is worth today. Essential for DCF analysis and investment decisions.
Future Value Details
Discount Effect
Time "discounts" $54,948 from the future value
Discount Rate Sensitivity
| Rate | Present Value | Discount |
|---|---|---|
| 4%(Risk-Free) | $67,077 | -$32,923 |
| 6%(Conservative) | $54,963 | -$45,037 |
| 8%(Market) | $45,052 | -$54,948 |
| 10%(Business) | $36,941 | -$63,059 |
| 15%(Aggressive) | $22,521 | -$77,479 |
Higher discount rate = lower present value. Use higher rates for riskier cash flows.
Explore More Financial Tools
The Time Value of Money
Present Value (PV) answers a critical question: "What is future money worth TODAY?" A dollar today is worth more than a dollar tomorrow because you can invest it and earn returns. This principle—the time value of money—is fundamental to all finance.
PV helps you make smarter decisions: take the lump sum or annuity? Is this investment worth the price? How much should I pay for future cash flows? The answer always comes back to present value.
The Present Value Formula
PV = FV / (1 + r)^nFV = future value, r = discount rate, n = periods
Example: $100,000 in 10 years at 8% discount:
PV = $100,000 / (1.08)^10 = $100,000 / 2.159 = $46,319
That future $100K is worth less than $47K today!
Discount Rate Impact: $100,000 in 10 Years
| Discount Rate | Risk Level | Present Value | Discount Amount |
|---|---|---|---|
| 4% | Risk-Free (Treasury) | $67,556 | -$32,444 |
| 6% | Conservative | $55,839 | -$44,161 |
| 8% | Market Average | $46,319 | -$53,681 |
| 10% | Corporate Hurdle | $38,554 | -$61,446 |
| 15% | High Risk / Startup | $24,718 | -$75,282 |
Higher risk = higher discount rate = lower present value. This is why risky investments must promise higher returns.
Key Concepts
Discounting
The process of finding present value. It "discounts" future money to account for the waiting period and opportunity cost.
NPV (Net Present Value)
PV of all cash inflows minus initial cost. If NPV > 0, the investment creates value. If NPV < 0, reject it.
Perpetuity
Payments forever. Valued as: PV = Payment / Rate. $10K/year forever at 5% = $200K today. Used for preferred stocks.
DCF Analysis
Discounted Cash Flow—value a business by summing PV of all projected future cash flows. The gold standard in valuation.
Calculator Features
Frequently Asked Questions
What is Present Value and why does it matter?
Present Value (PV) is the current worth of future money, discounted at an appropriate rate. It matters because: (1) Money today is worth more than money tomorrow (time value of money). (2) You could invest today's money and earn returns. (3) Inflation erodes purchasing power over time. (4) It enables comparing cash flows at different times. Example: $100,000 in 10 years at 8% discount = $46,319 today. If offered $50,000 now vs $100,000 in 10 years, take the $50,000—it's worth more!
What is the Present Value formula?
For lump sum: PV = FV / (1 + r)^n. Where FV = future value, r = discount rate per period, n = number of periods. For annuity (regular payments): PV = PMT × [(1 - (1 + r)^-n) / r]. For perpetuity (forever payments): PV = PMT / r. Example: $50,000 in 5 years at 6% discount. PV = $50,000 / (1.06)^5 = $37,363.
What discount rate should I use?
Match discount rate to risk level: Risk-Free (4-5%): Government bonds, guaranteed payments. Conservative (6-7%): Investment-grade corporate bonds, stable companies. Market Rate (8-10%): S&P 500 average, diversified portfolios. Corporate Hurdle (10-15%): Business investment decisions. High Risk (15-25%): Startups, speculative investments. Rule: Higher uncertainty = higher discount rate = lower present value. Underestimating risk leads to overpaying for future cash flows.
What is Discounted Cash Flow (DCF) analysis?
DCF is a valuation method that calculates PV of all future cash flows to determine what something is worth today. Steps: (1) Project future cash flows (revenues, dividends, etc.). (2) Choose appropriate discount rate (WACC for companies). (3) Calculate PV of each cash flow. (4) Sum all PVs = Total value today. Used for: valuing businesses, stocks, real estate, projects. A company generating $1M/year for 10 years at 10% discount is worth ~$6.14M today, not $10M.
How do I compare a lump sum vs annuity payment?
Calculate PV of the annuity and compare to the lump sum offered. Example: Win lottery—$1M now or $80K/year for 20 years. PV of annuity at 6%: $80,000 × [(1 - 1.06^-20) / 0.06] = $917,014. Lump sum ($1M) > PV of annuity ($917K). Take the lump sum! But if annuity PV is higher, or you're bad with money, take the annuity. Always discount at a rate you could realistically earn investing.
What is a perpetuity and how is it valued?
A perpetuity is a stream of payments that continues forever. Surprisingly simple formula: PV = Payment / Discount Rate. Example: $10,000/year forever at 5% = $10,000 / 0.05 = $200,000 today. For growing perpetuity: PV = Payment / (Rate - Growth). $10,000 growing 2% forever at 5% = $10,000 / (0.05 - 0.02) = $333,333. Used for valuing: preferred stocks, certain real estate, endowments.
How does time affect present value?
Time dramatically reduces present value. $100,000 at 8% discount: In 5 years: PV = $68,058 (32% discount). In 10 years: PV = $46,319 (54% discount). In 20 years: PV = $21,455 (79% discount). In 30 years: PV = $9,938 (90% discount). The further away the money, the less it's worth today. This is why early retirement savings are so powerful—money invested early has more time to compound.
What is Net Present Value (NPV)?
NPV = Sum of all discounted cash inflows - Initial investment. NPV > 0: Project adds value, accept it. NPV = 0: Breaks even exactly at required return. NPV < 0: Project destroys value, reject it. Example: Project costs $50,000 now, returns $20,000/year for 3 years. At 10% discount: PV of returns = $49,737. NPV = $49,737 - $50,000 = -$263. Reject—it doesn't meet 10% hurdle rate.
How do I use PV for retirement planning?
Work backwards from your retirement goal: (1) Estimate needed retirement income: $60,000/year. (2) Calculate corpus needed (4% rule): $60,000 / 0.04 = $1,500,000. (3) Calculate PV of that goal. If retiring in 30 years, 8% investment return: PV = $1,500,000 / (1.08)^30 = $149,118. This tells you: investing $149,118 today (or equivalent monthly contributions) should reach $1.5M in 30 years at 8%.
Why do bond prices fall when interest rates rise?
Bond prices ARE present values of future payments. When rates rise, discount rate rises, PV falls. Example: Bond pays $50/year for 10 years + $1,000 at maturity. At 5%: PV = $1,000 (par value). At 7%: PV = $859 (14% loss). At 3%: PV = $1,170 (17% gain). This is the mathematical reason behind bond price-rate inverse relationship. Longer bonds are more sensitive (more future payments to discount).