Present Value Calculator

How to use this calculator

1. Enter the Future amount you expect to receive (a lump sum, such as a settlement or maturity value).
2. Set the Discount rate: the annual return you could earn elsewhere, or a rate that reflects risk and inflation.
3. Enter the number of Years until you receive the money.
4. If you will also receive a level yearly amount, add it under Payment received each year; the calculator then values the lump sum and the payments together.

The idea behind discounting

Money you hold now can earn a return or be spent immediately, so a promise of the same amount later is worth less. Present value reverses compound growth: instead of growing today's money forward, you shrink a future amount back to today using the discount rate.

PV = FV / (1 + r)^n  +  PMT × (1 − (1 + r)^−n) / r

• FV = future lump sum
• r = discount rate per year, as a decimal (6% = 0.06)
• n = number of years
• PMT = payment received at the end of each year

For a level yearly payment, each payment is discounted separately and the results are added. That is what the optional payment field does.

Example: a $50,000 payout in 15 years

Suppose a policy will pay $50,000 in 15 years. At a 6% discount rate the present value is $20,863.25: you would be indifferent between that sum today and the payout later if you could earn 6% elsewhere. The discount is $29,136.75.

The rate drives the answer. At 3% the same payout is worth $32,093.10 today; at 9% only $13,726.90. A threefold change in the rate changes the value by more than half, which is why you should always test a range rather than trust one rate.

Example: comparing a lump sum with an income stream

A pension offer gives you either $200,000 now or $12,000 a year for 20 years. Put 0 in the future amount, 6% as the rate, 20 years and $12,000 as the payment: the stream is worth $137,639.05 today. At 6%, taking the lump sum looks better by a wide margin.

Change the rate to what you could realistically earn and the answer shifts. The stream also carries other features the calculator ignores, such as longevity protection and inflation adjustment, so treat the number as one input to the decision.

Choosing a sensible discount rate

There is no single correct rate. A low rate suits near-certain payments, such as a government-backed amount. A higher rate suits uncertain ones, because risk reduces what a promise is worth to you. Some people use their expected investment return; others use the interest rate on the debt they could repay instead.

Run at least three rates and see whether your decision changes. If it does, the choice is sensitive and deserves a closer look with a financial adviser. Present value also underlies a loan calculator schedule and is the mirror image of the compound interest calculator.

Assumptions and limits

The calculator assumes one fixed rate for the whole period, annual compounding, and that payments arrive at the end of each year. It does not adjust for taxes, changing inflation, uneven payments or the chance that the payer defaults. Present value is a comparison tool: it tells you how two cash flows at different times stack up under one assumption, not what will actually happen.

Frequently asked questions