Present Value Calculator
Use this online PV calculator to easily calculate the Present Value, a.k.a. Present Worth of a future sum of money or stream of cash flow based on the rate of return (discount rate) and the investment term. Calculates present value of annuity or any other periodicity.
- Using the PV calculator
- What is Present Value?
- PV formula
- Present Value calculation example
- Financial caution
Using the PV calculator
Our Present Value calculator is a simple and easy to use tool to calculate the present worth of a future asset. All you need to provide is the expected future value (FV), the discount rate / return rate per period and the number of periods over which the value will accumulate (N). Once these are filled, press "Calculate" to see the present value and the total interest accumulated over the period.
What is Present Value?
The present value, a.k.a. present worth is defined as the value of a future sum of money or cash flow stream at present, given a rate of return over a specified number of periods. The concept reflects the time value of money, which is the fact that receiving a given sum today is worth more than receiving the same amount in some future date. It is practically compound interest calculation done backwards to find the amount you have to invest now to get to a desired amount in the specified point in the future. It is widely used in finance and stock valuation, although Net Present Value (NPV) is often preferred by experienced experts.
NPV is used in financial analysis, investment assessment and accounting, e.g. in calculating capital expenditure and depreciation. The difference between PV and NPV is that present value doesn't take outflows into account while net present value does ("net" means combining positive and negative flows). To compare it to simpler concepts: PV is like revenue while NPV is like net income of a business or individual after deductions for expenses. Still, a PV calculator has utility in certain situations.
If you wonder how to calculate the Present Value (PV) / Present Worth (PW) by yourself or using an Excel spreadsheet, all you need is the present value formula:
where r is the return rate and n is the number of periods over which the return is expected to happen. For example, with a period of 5 years and expected future value of $1,000,000, given a return rate of 8%, n is 5, C1 is $1,000,000 and r is 0.08, leading to the calculation: 1000000 / (1.08)5 = $680583.20 . As you can see, the application of the present value formula is very straightforward.
When the discount rate is annual (i.e. as with an interest rate on a certificate of deposit), and the period is a year, this is equivalent to the present value of annuity formula. This equation is used in our present value calculator as well, so you can use it for checking your PV calculations. It can be used in Excel to build your own calculation table.
Present Value calculation example
Assume an investment of money with a known annual discount rate in the form of an interest rate on a bank deposit, hence annual periodicity, and known (or estimated) future value of $100,000. What is the present value of this investment if it is expected to receive this future value of $100,000 in 1, 2, 3, 5, or 10 years from now? The answers based on the present value formula and are shown in the table below.
|Future Value||Rate of Return||Number of Years||Present Value|
This is a great example of the time value of money concept in action demonstrated through simple present value calculations. The present value of the annuity decreases the more time it takes to pay off if the future value and rate of return staying the same. In other words, to maintain the same present value the interest rate would need to increase parallel to the increasing number of years one is locked into an investment. In short, a greater discount rate is required to justify a longer term investment decision.
This is a simple online software which is a good starting point in estimating the Present Value for any investment, but is by no means the end of such a process. You should always consult a qualified professional when making important financial decisions and long-term agreements, such as long-term bank deposits. Use the information provided by the tool critically and at your own risk.
Cite this calculator & page
If you'd like to cite this online calculator resource and information as provided on the page, you can use the following citation:
Georgiev G.Z., "Present Value Calculator", [online] Available at: https://www.gigacalculator.com/calculators/present-value-calculator.php URL [Accessed Date: 22 Oct, 2021].