Present Value
Calculate the present value of money.
Formula
PV = FV / (1 + r)n
Where:
- PV = Present Value
- FV = Future Value
- r = Discount Rate per period (in decimal)
- n = Number of periods
The concept of Present Value (PV) is a cornerstone of finance, built on the principle of the time value of money: a dollar today is worth more than a dollar in the future. This is because money available today can be invested and earn a return. The Present Value Calculator helps you determine the current worth of a future sum of money by "discounting" it back to today. This is essential for evaluating investment opportunities, valuing businesses, and making informed financial decisions. To use this calculator, you need to input three key variables. First, enter the 'Future Value (FV)', which is the amount of money you expect to receive at a specific point in the future. Second, provide the 'Discount Rate' (or interest rate) per period, as a percentage. This rate represents the return you could earn on an investment, and it is used to quantify the "cost" of waiting for the money. The higher the discount rate, the lower the present value of the future cash flow will be. Third, specify the 'Number of Periods' (e.g., years) until you will receive the future value. Once you click 'Calculate Present Value', the tool will apply the present value formula, PV = FV / (1 + r)ⁿ, to find out how much that future amount is worth in today's dollars. This helps you compare investments with different payout timelines on an equal footing.