Present Value Calculator

1. Enter the future amount you expect to receive, and a payment each period if the money arrives as a stream.
2. Add a discount rate, the return you could earn elsewhere, and the number of years.
3. Choose the frequency and read the present value, the total future cash and the discount.

Each result answers a slightly different question:

Present value is the amount a future payment is worth right now. A dollar received in ten years is worth less than a dollar in your hand today, because money you hold today can be invested and grow. Present value captures that idea by discounting future cash back to the present at a chosen rate.

It is the core idea behind the time value of money, and it sits underneath bond pricing, pension valuations, lawsuit settlements, lottery payout choices and business investment decisions. Whenever you must compare money that arrives at different times, converting everything to present value puts it on the same footing.

Present value is the mirror image of future value. The future value calculator grows money forward, while this tool pulls future money back to today using the same compounding factor in reverse.

It discounts the lump sum by the compounding factor, then adds the present value of the payment stream, which is an ordinary annuity.

Here i is the discount rate per period and N the number of periods. The lump sum is worth FV/(1+i)^N today, and the stream of payments is worth PMT * (1 - (1+i)^-N)/i. Adding the two gives the total present value.

1. Divide the annual rate by the number of periods per year and count the total periods.
2. Discount the future lump sum by dividing by the compounding factor.
3. Value the payment stream as an annuity and add it to the discounted lump sum.

Payments are assumed to arrive at the end of each period. If the discount rate is zero, the present value equals the plain total of future cash.

Suppose you are promised 50,000 in 10 years and could earn 6 percent a year elsewhere, compounded monthly. The compounding factor over 120 months is about 1.8194, so the present value is 50,000 divided by 1.8194, roughly 27,482. Waiting a decade costs about 22,518 in todays money.

Now take a stream instead: 1,000 a month for 20 years, discounted at 5 percent. You would collect 240,000 in total, but its present value is only about 151,525. That figure is what a lump sum today would need to be to match the stream, which is exactly the comparison behind a lottery or pension lump-sum choice.

Combine the two, 100,000 in 15 years plus 500 a month, at 7 percent, and the present value is about 90,729 against 190,000 of future cash, so more than half the nominal total disappears once time is priced in.

These three measures are closely related but answer different questions.

Net present value simply subtracts the upfront cost from the present value of the cash an investment returns. If you want the rate that makes those two equal instead, the IRR calculator solves for it.

Three inputs drive the answer, and they interact strongly.

The Discount Rate

A higher rate means the money could earn more elsewhere, so a future sum is worth less today. Moving from 4 to 8 percent can cut the present value of a distant payment by a third or more.

Time

The further away the money, the more heavily it is discounted. Present value falls fastest for long horizons because the compounding factor grows exponentially.

Timing of Payments

A stream of payments is worth more than the same total paid as one lump sum at the end, because earlier payments are discounted less.

Compounding Frequency

More frequent compounding makes the discount factor slightly larger, nudging present value down a little.

Lump Sum or Annuity Choices

Compare a one-time payout with a series of payments, such as a pension, structured settlement or prize, by converting both to todays value.

Valuing a Future Obligation

Work out how much to set aside now to meet a known future cost, such as a tuition bill or a balloon payment.

Pricing Bonds and Investments

A bond is the present value of its coupons plus its face value, discounted at the market yield.

Negotiating Deals

When an offer involves payments spread over years, present value shows what it is really worth in todays money.

1. Using the Wrong Discount Rate

The rate should reflect the return you could realistically earn with similar risk. Too low a rate overstates present value.

2. Mixing Annual and Monthly Figures

If payments are monthly, the rate and periods must be monthly too. The frequency toggle handles this for you.

3. Treating Nominal Totals as Equal

Two offers with the same total can have very different present values if the cash arrives at different times.

4. Ignoring Inflation and Risk

A promised payment may not arrive, and inflation erodes it. Riskier cash deserves a higher discount rate.

5. Forgetting Payment Timing

Payments at the start of each period are worth a little more than the end-of-period figures shown here.

The math is exact for the inputs you give, but the answer is only as good as the discount rate you choose.

Present value is what a future sum of money is worth today, after discounting it at a rate of return. It reflects the fact that money now can be invested and grow.

PV = FV / (1 + i)^N for a lump sum, plus PMT x [1 - (1 + i)^-N] / i for a stream of level payments, where i is the rate per period and N the number of periods.

Use the return you could realistically earn on an investment of similar risk. Many people use a savings or bond rate for safe cash and a higher rate for riskier cash.

Because waiting has a cost. Money you receive later could have been invested in the meantime, so its value today is smaller than its face value.

Present value is the value today of future cash. Net present value subtracts the upfront cost of an investment from that present value to show whether it creates value.

Yes. Enter the payment stream to find its present value, then compare it with the lump sum offered. The larger present value is worth more today, before tax.

More frequent compounding slightly increases the discount factor, so present value falls a little. The effect is small at low rates.

No. It assumes payments at the end of each period. Payments made at the start are worth slightly more, by roughly one period of interest.

No. The calculation runs in your browser, and nothing you enter is sent anywhere unless you Save a result, which stays on this device only.

• Present value (Wikipedia).
• Present value explained (Investopedia).
• Time value of money (Corporate Finance Institute).