How to use the Present Value Calculator
- Enter the amount you expect to receive in the future.
- Enter the yearly rate you would earn, or the inflation rate you want to discount by.
- Enter the number of years and the compounding frequency.
- Read the present value, the total discount and the discount factor.
Formula used
PV = FV ÷ (1 + r ÷ m)^(m × t), where r is the yearly rate, m the compounding periods per year and t the years.
Worked example
Here is the Present Value Calculator worked through with the example values shown above, so you can check each step by hand.
| Inputs | |
|---|---|
| Future amount | $100,000 |
| Discount rate (per year) | 7 % |
| Years until you receive it | 10 years |
| Compounding | Yearly |
| Result | |
| Present value | $50,834.93 |
| Total discount | $49,165.07 |
| Discount factor | 0.50834929 |
Present value by number of years
For the default 100,000 discounted at 7% a year.
| Years until you receive it | Present value |
|---|---|
| 1 years | $93,457.94 |
| 5 years | $71,298.62 |
| 10 years | $50,834.93 |
| 15 years | $36,244.60 |
| 20 years | $25,841.90 |
| 30 years | $13,136.71 |
The formula
PV = FV ÷ (1 + r ÷ m)^(m × t). For $100,000 in 10 years at 7% compounded yearly, PV = 100,000 ÷ 1.07¹⁰ = $50,834.93. The difference, $49,165.07, is the discount, and the discount factor is 0.5083.
Put another way, $50,835 invested today at 7% a year would grow to $100,000 in ten years.
The rate matters most
Higher discount rates shrink present value quickly. At 10% instead of 7%, the same $100,000 is worth only $38,554.33 today. The table above shows how present value falls as the number of years grows.
Compounding more often has a smaller effect. Monthly compounding at 7% gives $49,759.63 instead of $50,834.93.
Choosing a discount rate
For a comparison with an alternative investment, use the return you could realistically earn on it. To see the purchasing power of future money, use the expected inflation rate. In business, a company often uses its cost of capital.
There is no perfect rate, so it is worth trying a few and seeing how sensitive the answer is.
Where it is used
Present value is used to compare a lump sum now with a larger payment later, to value a bond or a future inheritance, to judge a structured settlement, and in project appraisal. If you receive a series of payments, you discount each one and add them up.
The compound interest and lumpsum calculators on this site do the opposite, growing a present sum forward to a future value.
Frequently asked questions
What is present value?
The amount you would need today to reach a given future sum at a chosen rate of return.
What is a discount rate?
The yearly rate used to reduce a future amount to today’s value. It reflects the return you could earn elsewhere or inflation.
How is present value different from future value?
Future value grows money forward. Present value discounts it back. They are the same equation rearranged.
Does compounding frequency change the result?
Slightly. More frequent compounding means a bigger effective rate and so a lower present value.
Can I use inflation as the discount rate?
Yes, that shows what the future money is worth in today’s purchasing power.
Does it work for a series of payments?
This tool handles one future amount. For a series, discount each payment separately and add the results.
This calculator gives estimates for information only. Actual figures from a bank, employer, tax authority or doctor may differ. It is not financial, tax, legal or medical advice.