What is the present value formula?

PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate per period, and n is the number of periods. For an annuity: PV = PMT × (1 − (1+r)^-n) / r.

What discount rate should I use?

The discount rate should reflect your opportunity cost — what you could earn on a comparable investment. Common choices: risk-free rate (~4–5% for US Treasuries), stock market expected return (~7–10%), or your company's cost of capital (WACC) for business decisions.

What is an annuity present value?

An annuity is a series of equal periodic payments. The present value of an annuity discounts each payment back to today. For example, receiving $1,000/year for 10 years at a 5% discount rate has a PV of $7,722 — not $10,000 — because future payments are worth less in today's dollars.

Present Value Calculator

Determine how much a future sum is worth in today's dollars. Use the present value formula to compare investment options, evaluate annuities, or assess any future cash flow against your required rate of return.

Calculation Mode

Annual Discount Rate (%)

Future Value ($)

Years Until Received

Present Value Results

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Understanding Present Value

The time value of money says a dollar today is worth more than a dollar in the future. Present value quantifies exactly how much more — by discounting future cash flows at your opportunity cost rate.

Lump sum PV: PV = FV ÷ (1 + r)ⁿ

Annuity PV: PV = PMT × (1 − (1+r)^-n) ÷ r

When to Use Present Value

Comparing two investments with different payout timelines
Evaluating whether a pension lump sum beats monthly payments
Pricing bonds or other fixed-income instruments
Business capital budgeting and NPV analysis

Choosing a Discount Rate

The discount rate represents your opportunity cost — what you could earn on the money elsewhere. Common choices include the current Treasury yield (risk-free rate), your expected investment return (7–10% for equities), or a company's hurdle rate. A higher discount rate shrinks present value, making distant money worth less today. Use a rate that reflects the actual risk of the cash flows being discounted.

Frequently Asked Questions

What is present value used for?

Present value is used to compare money received at different points in time on equal footing. It answers: "How much is a future payment worth in today's dollars?" This is fundamental to bond pricing, capital budgeting, retirement planning, and any decision involving cash flows spread across time.

What is net present value (NPV)?

Net present value is the sum of all present values of future cash flows minus the initial investment. A positive NPV means the investment is worth more than it costs — accept it. A negative NPV means it destroys value — reject it. NPV is the standard tool for capital investment decisions in business finance.

How does the discount rate affect present value?

Present value moves inversely with the discount rate. A higher rate produces a lower present value — future money is worth less when better alternatives exist. This is why rising interest rates tend to lower the value of bonds, real estate, and other long-duration assets.