Present Value Calculator
Calculate the current worth of future cash flows and investments
The Present Value Calculator helps you determine what future money is worth today by accounting for the time value of money. This is essential for investment decisions, loan evaluations, and financial planning. By discounting future cash flows at an appropriate rate, you can compare different investment opportunities and make informed financial decisions.
Present Value Analysis
Present Value Analysis
Value Analysis
Sensitivity Analysis
| Discount Rate | Present Value | Change |
|---|---|---|
| 6% | $55,839 | +20.6% |
| 7% | $50,835 | +9.7% |
| 8% | $46,319 | +0% |
| 9% | $42,241 | -8.8% |
| 10% | $38,554 | -16.8% |
Investment Comparison
Recommendations
Time significantly erodes value - evaluate if the wait is worthwhile
Compare this present value with alternative investment opportunities
Consider inflation impact on future purchasing power
How to Use
1. Select the type of cash flow you want to analyze
2. Enter the future value or payment amounts
3. Specify the number of periods and period type
4. Set the appropriate discount rate
5. For growing annuities, add the growth rate
6. Review the present value and analysis
Present Value Formulas
Single Future Value
PV = FV ÷ (1 + r)^n
Where FV = future value, r = discount rate, n = periods
Ordinary Annuity
PV = PMT × [(1 - (1 + r)^-n) ÷ r]
Where PMT = payment amount
Perpetuity
PV = PMT ÷ r
For payments that continue forever
Growing Annuity
PV = PMT × [(1 - ((1 + g)/(1 + r))^n) ÷ (r - g)]
Where g = growth rate
Understanding Discount Rates
Common Discount Rates
- Risk-free rate: 2-4% (government bonds)
- Corporate bonds: 4-8% (depending on credit rating)
- Stock market: 8-12% (historical average)
- Real estate: 6-10% (depending on market)
- High-risk investments: 12-20% (startups, emerging markets)
Choosing the Right Rate
The discount rate should reflect the risk and opportunity cost of the investment. Higher risk requires higher discount rates.
Applications
Investment Analysis
Compare different investment opportunities by calculating their present values using the same discount rate.
Loan Decisions
Determine if taking a loan or paying cash is more beneficial by comparing present values.
Retirement Planning
Calculate how much you need to save today to reach your retirement goals.
Business Valuation
Value businesses based on their projected future cash flows.
Example Calculation
Retirement Annuity Example:
• Annual payment: $50,000
• Duration: 20 years
• Discount rate: 6%
Calculation: PV = $50,000 × [(1 - (1.06)^-20) ÷ 0.06]
Present Value: $573,496
Interpretation: $573,496 invested today at 6% would provide $50,000 annually for 20 years
Frequently Asked Questions
What is the time value of money?
Money available today is worth more than the same amount in the future due to its earning potential. This principle underlies all present value calculations.
How do I choose the right discount rate?
Use rates that reflect the risk and opportunity cost. For low-risk investments, use rates similar to government bonds. For higher risk, use higher rates.
What's the difference between NPV and PV?
Present Value (PV) is the current worth of future cash flows. Net Present Value (NPV) subtracts the initial investment from PV to show net benefit.