Present Value Calculator
Present Value Calculator
A dollar today is worth more than a dollar in the future, because today's dollar can be invested and grow. Present value "discounts" a future sum back to today's equivalent, using a chosen discount rate that reflects what that money could otherwise earn.
Anyone comparing a future payment or investment — a lawsuit settlement paid over time, a bond's future payout, or an investment return promised years from now — uses present value to judge whether the future amount is genuinely worth waiting for compared to money in hand today.
- Formula: PV = FV / (1 + r)ⁿ, where FV is the future value, r is the discount rate, and n is the number of years.
- Inverse of Future Value: This is the mirror image of a standard compound interest calculation — it discounts backward instead of growing forward.
- Discount Rate Choice Matters: A higher discount rate makes the present value lower, since it implies the money could earn more elsewhere in the meantime.
What discount rate should I use?
Commonly your expected investment return, cost of capital, or a risk-free rate like a treasury bond yield — the "right" rate depends on the specific financial decision being evaluated.
Why is a future dollar worth less than today's dollar?
Because a dollar in hand today can be invested and grow through interest or returns — a dollar received later missed out on that growth opportunity, which is exactly what the discount rate captures.
Present Value Calculator
A dollar today is worth more than a dollar in the future, because today's dollar can be invested and grow. Present value "discounts" a future sum back to today's equivalent, using a chosen discount rate that reflects what that money could otherwise earn.
Anyone comparing a future payment or investment — a lawsuit settlement paid over time, a bond's future payout, or an investment return promised years from now — uses present value to judge whether the future amount is genuinely worth waiting for compared to money in hand today.
- Formula: PV = FV / (1 + r)ⁿ, where FV is the future value, r is the discount rate, and n is the number of years.
- Inverse of Future Value: This is the mirror image of a standard compound interest calculation — it discounts backward instead of growing forward.
- Discount Rate Choice Matters: A higher discount rate makes the present value lower, since it implies the money could earn more elsewhere in the meantime.
What discount rate should I use?
Commonly your expected investment return, cost of capital, or a risk-free rate like a treasury bond yield — the "right" rate depends on the specific financial decision being evaluated.
Why is a future dollar worth less than today's dollar?
Because a dollar in hand today can be invested and grow through interest or returns — a dollar received later missed out on that growth opportunity, which is exactly what the discount rate captures.