What is present value?

Present value (PV) is what a future amount is worth today after discounting by an interest rate. Because money can earn interest, the same amount received later is worth less today.

How is present value used?

It is used to price bonds, compare investment opportunities and evaluate whether future money is worth more or less than an amount available today.

Present Value Calculator

Discount a future amount back to today's money.

Future Amount

Future Value ($)

Annual Discount Rate (%)

Time Period (years)

yrs

Compounding

Present Value

—

Total Discount

—

Effective Annual Rate

—

Why discounting matters

$10,00,000 received 10 years from now is worth only about $5,50,000 today at a 6% discount rate. The higher the rate or the longer the wait, the less a future amount is worth now.

Present Value FAQ

What discount rate should I use?▶

Use the return you could earn elsewhere (opportunity cost) or your cost of borrowing. For safe cash flows, a 5-8% rate is common in India.

What is the difference between present value and future value?▶

Future value grows a current amount forward with compounding. Present value discounts a future amount backward. They are two sides of the same coin.