Present Value Calculator

Present Value Calculator: The Value of Money Today

Would you rather receive $1,000 today or $1,000 five years from now? The answer is obvious: take the money today. But what if the choice is between $1,000 today and $1,500 in five years? The Present Value (PV) Calculator helps you make that decision by translating future cash flows into today's dollars.

The Time Value of Money (TVM)

The core principle behind this calculator is the Time Value of Money. Money available today is worth more than the same amount in the future because of its potential earning capacity.

Key Concept: If you invest $1,000 today at 5% interest, it will be worth $1,050 in one year. Therefore, $1,050 next year has a "Present Value" of $1,000 to you today.

The Formula

PV = FV / (1 + r)^n

PV: Present Value
FV: Future Value (amount you will receive)
r: Discount Rate (or interest rate)
n: Number of periods (years)

Choosing the Right Discount Rate

The "r" variable is subjective and depends on your opportunity cost.

Risk-Free Rate: If the future payment is guaranteed (like a government bond), use a low rate (e.g., 3-4%).
Market Rate: If you could invest the money in the stock market instead, use a higher rate (e.g., 7-10%).
Inflation Rate: If you just want to know purchasing power, use the inflation rate (e.g., 3%).

Frequently Asked Questions

What is NPV?

Net Present Value (NPV) is the sum of the present values of incoming and outgoing cash flows over a period of time. It's used to analyze the profitability of a projected investment or project.

Why is PV less than FV?

Because future money is "discounted" back to the present. The discount accounts for lost investment opportunity and inflation.