Why money today is worth more
A dollar you have now can be invested and earn interest, so a dollar promised in the future is worth less than a dollar today. Present value answers the question: how much would I need to set aside now, at a given rate of return, to end up with a specific amount later? The rate you use is called the discount rate; it is usually what you could earn elsewhere with similar risk.
Worked example
You want $10,000 in 10 years and can earn 7% a year. The present value is 10,000 ÷ 1.07¹⁰ = $5,083.49. Investing that amount today at 7% grows to $10,000 in ten years. The discount factor, 0.5083, tells you each future dollar is worth about 51 cents now.
With monthly compounding at the same nominal rate, money grows slightly faster, so you need a little less today: $4,975.96.
Where present value is used
Comparing a lump-sum payout with an annuity, pricing bonds, valuing a business or a pension, and deciding whether a future payment is worth an upfront cost.
How this works
The page divides the future amount by (1 + r ÷ n) raised to n × t, where r is the annual rate as a decimal, n the number of compounding periods per year and t the number of years. The discount factor is the result divided by the future amount, and the discount is the difference between the two. The rate is assumed constant. Everything is calculated in your browser.
Frequently asked
What is the present value formula?
PV = FV ÷ (1 + r)^t for annual compounding, or FV ÷ (1 + r/n)^(n·t) with n periods per year.
Which discount rate should I use?
The return you could earn on an alternative with similar risk: a savings rate for safe money, an expected market return for investments.
Why does a higher rate lower the present value?
Because each dollar invested today grows faster, so you need fewer of them to reach the same future amount.
Is present value the same as NPV?
NPV sums the present values of several cash flows, including the initial cost. PV is for a single amount.
Sources
Reviewed Oct 17, 2026 · test vectors fixtures/calculators/finance/present-value-calculator/