Present Value Calculator

The calculator takes one sum you expect to receive later and works out what it is worth today: PV = future value ÷ (1 + rate)^years, compounded once a year.

With the defaults, $10,000 received in 5 years, discounted at 6%, has a present value of $7,472.58. The total discount is $2,527.42.

The discount factor line shows 0.75, rounded to two decimals. The unrounded factor is about 0.7473, and multiplying any amount due in 5 years at 6% by it gives that amount's present value.

The rate is the only judgment call, and it changes the answer more than anything else. A practical choice is the return you could realistically earn on the money elsewhere at a similar level of risk. Waiting for the future payment means giving that return up.

If the future payment is uncertain, for example money owed by someone who might not pay, a higher rate reflects that risk. A payment that is close to guaranteed justifies a lower one.

Present value is how you compare offers paid at different times. Say you can take $7,000 today or $10,000 in 5 years.

1. At 6%, the later payment is worth $7,472.58 today, more than the $7,000 on offer, so waiting comes out ahead.
2. The two options break even at a discount rate of about 7.39%.
3. If you could reliably earn more than that on $7,000, the payment today wins.

The same steps apply to a settlement paid in instalments, an early-payment discount from a supplier, or a buyer offering to pay you later for something you are selling.

• More than one payment. The tool handles one amount at a time. For a series, discount each payment for its own number of years and add them. $3,000 at the end of each of the next 3 years at 6% is $2,830.19 + $2,669.99 + $2,518.86 = $8,019.04.
• Partial years. The years field accepts half-years. $10,000 in 2.5 years at 6% is worth $8,644.41 today.
• Zero years. The present value equals the future value.
• Compounding. Discounting is annual. A rate compounded monthly would give a slightly lower present value for the same nominal rate.
• Inflation instead of returns. Enter an inflation rate as the discount rate to see a future sum in today's purchasing power. The inflation calculator's purchasing-power line uses the same formula.