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Present Value Calculator: What Is Future Money Worth Today?
Enter a future amount, a discount rate and a number of years to see what it is worth now. You can also add uneven yearly cash flows to value a whole series in one step.
The idea behind discounting
Money received later is worth less than the same amount received now, for three reasons: you could invest the money in the meantime, prices may rise, and the future payment may not arrive. Present value turns a future amount into an equivalent amount today by reversing compound growth. The rate you divide by is called the discount rate. A higher rate shrinks present value, because the alternative use of the money looks more attractive.
Choosing the rate is the hardest step. Common choices include the return on a safe deposit, the return on a comparable investment, or a rate that adds a margin for risk. The calculator has no view on which is right, so test several.
The formula
For a single future amount: PV = FV ÷ (1 + r ÷ n)n × t, where FV is the future amount, r the annual rate as a decimal, n the compounding periods a year and t the years. The part being divided by is the reciprocal of the discount factor, and 1 ÷ (1 + r ÷ n)n × t is the discount factor itself.
For a series, each yearly cash flow gets its own factor: PV = CF1 ÷ (1 + e) + CF2 ÷ (1 + e)2 + … where e is the effective annual rate. Adding these terms, less any initial cost, gives the net present value used in investment appraisal.
Reading the numbers
| Future amount of 10,000 in | At 3% | At 5% | At 8% |
|---|---|---|---|
| 5 years | 8,626.09 | 7,835.26 | 6,805.83 |
| 10 years | 7,440.94 | 6,139.13 | 4,631.93 |
| 20 years | 5,536.76 | 3,768.89 | 2,145.48 |
Both the discount rate and the time matter. At 8%, a sum due in twenty years is worth about a fifth of its face value today. When comparing two offers, such as 9,000 now against 10,000 in three years, compute the present value of the delayed offer and pick the larger figure, subject to your view of risk.
Limits and common errors
- Mixing periods. If the rate is yearly, express time in years, not months.
- Nominal and real rates. Use a rate that includes inflation for cash flows in future money, or a real rate for cash flows in today's money. Do not mix the two.
- Timing. Cash flows here are assumed to arrive at the end of each year. Payments at the start of a year are worth more.
- Regular equal payments. For level streams the annuity calculator is quicker.
The output depends entirely on the rate you assume and is an illustration, not a valuation of any asset.
Worked example
A payment of 25,000 is due in eight years, and 1,000 arrives at the end of each of the next three years. What are they worth today at a 6% discount rate?
Inputs
| Future lump sum | 25000 |
|---|---|
| Annual discount rate | 6 % |
| Years until the lump sum | 8 |
| Discount rate compounded | Yearly |
| Extra yearly cash flows (optional) | 1000, 1000, 1000 |
Result
Worth today at a 6% discount rate.
| Lump sum discounted | 15,685.31 |
|---|---|
| Discount factor for the lump sum | 0.627412 |
| Effective annual discount rate | 6.0000% |
| Cash flows discounted | 2,673.01 |
| Difference between future and present value of the lump sum | 9,314.69 |
Discounting the yearly cash flows
| Year | Cash flow | Discount factor | Present value |
|---|---|---|---|
| Year 1 | 1,000.00 | 0.9434 | 943.40 |
| Year 2 | 1,000.00 | 0.8900 | 890.00 |
| Year 3 | 1,000.00 | 0.8396 | 839.62 |
- Formula for the lump sum: PV = FV ÷ (1 + r ÷ n)^(n × years). Yearly cash flows are discounted at the effective annual rate.
Financial disclaimer: Results are estimates for planning and education. They are not financial, tax or legal advice. Fees, taxes, rates and rules vary by lender, product and country, so confirm figures with your provider or a qualified adviser before making decisions.
Frequently asked questions
How do I calculate present value?
Divide the future amount by one plus the discount rate raised to the number of years. For 10,000 in 10 years at 5%, divide by 1.6289 to get about 6,139.13.
What discount rate should I use?
Use the return you could earn on an alternative with similar risk. Safer cash flows deserve a lower rate and riskier ones a higher rate. Try several to see how sensitive the answer is.
What is the difference between present value and net present value?
Present value discounts the incoming cash flows. Net present value also subtracts the initial cost of the investment, so a positive figure means the discounted inflows exceed the cost.
Why does a higher discount rate lower the present value?
A higher rate means money today could grow faster elsewhere, so any given future amount is worth less now.
Can the future amount be zero?
Yes. Set the lump sum to zero and enter only yearly cash flows if you want to value a series.
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References and sources
- Standard corporate-finance texts: discounted cash flow, present value and net present value.
- Investor.gov (U.S. SEC): educational material on the time value of money. Link