This present value calculator can be used to calculate the present value of a certain amount of money in the future.
Present Value: $558.39
| Present value | $558.39 |
| Total interest | $441.61 |
Present value (PV) is what a future amount of money is worth today. Because money can earn interest, $1,000 received in ten years is worth less than $1,000 in your hand now. Discounting a future amount back to today lets you compare payments that happen at different times.
PV = FV ÷ (1 + i)^N, where FV is the future amount, i is the interest rate per period and N is the number of periods. Worked example: $1,000 in 10 years at 6% a year has a present value of 1,000 ÷ 1.06^10 = 1,000 ÷ 1.7908 = $558.39. The difference, $441.61, is the interest you would earn by investing $558.39 today.
For equal payments made every period (an annuity) the present value is PMT × [1 − (1 + i)^−N] ÷ i for end-of-period payments, multiplied by (1 + i) if the payments are made at the beginning. Ten payments of $100 at 6% are worth $736.01 today when paid at the end of each period.
The rate should reflect what you could earn elsewhere at similar risk: a savings or bond rate for safe money, a higher expected return for risky projects. A higher rate gives a lower present value. Inflation can be included by using a nominal rate, or excluded by using a real (inflation-adjusted) rate.
Present value is behind loan pricing, bond valuation, pension and lottery lump-sum offers, lease-versus-buy decisions, business investment appraisal (net present value) and legal settlements. It is one of the five time-value-of-money quantities, together with FV, N, I/Y and PMT; see also the Future Value and Finance calculators.
Why is present value lower than future value? Because today's money can grow with interest.
What if the rate is zero? Then present and future value are equal.
Should N be in years or months? Either, as long as the interest rate uses the same period.