Present Value Calculator - Calculate PV from Future Value

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's a fundamental concept in finance that helps determine how much future money is worth today.

The present value calculation is based on the principle that money available today is worth more than the same amount in the future due to its potential earning capacity. This core principle is known as the "time value of money."

Present Value Formula

The Present Value formula is:

Where:

• PV = Present Value
• FV = Future Value
• r = Interest rate per period (as a decimal)
• n = Number of periods

Example Calculation

If you expect to receive $1,000 in 10 years, and the discount rate is 6% per year:

• Future Value (FV): $1,000
• Number of Periods (N): 10 years
• Interest Rate (I/Y): 6%
• Present Value: $558.39
• Total Interest: $441.61

This means that $558.39 invested today at 6% annual interest would grow to $1,000 in 10 years.

Applications of Present Value

Present Value calculations are used in various financial scenarios:

• Investment Analysis: Evaluating the worth of future cash flows
• Loan Calculations: Determining loan values and payments
• Business Valuation: Assessing the value of future earnings
• Retirement Planning: Calculating how much to save for future needs
• Bond Pricing: Valuing fixed-income securities