What is Present Value?
Present Value (PV) is the current worth of a future sum of money or stream of cash flows given a specified rate of return. It reflects the fact that money available today is worth more than the same amount in the future due to its potential earning capacity.
Present Value Formulas
1. Present Value of Future Money
PV = FV / (1 + r)n
2. Present Value of an Annuity (Ordinary)
PV = PMT × [1 − (1 + r)−n] / r
How to Use This Calculator
- Present Value of Future Money: Use when you know how much money you will receive in the future and want to know its value today.
- Present Value of Periodic Deposits: Use when you make regular deposits and want to know how much those deposits are worth today (e.g., for retirement planning or loan valuation).
Important Notes
- Higher discount rates result in lower present values.
- The timing of payments (beginning vs end of period) affects the present value of an annuity.
- Present Value is the foundation of discounted cash flow (DCF) analysis.