Quick answer: 10,000 received in 5 years, discounted at 6% a year, is worth 10,000 ÷ 1.06^5 = 7,472.58 today.
How it's calculated
PV = FV ÷ (1 + i)^n for a single amount, where i is the discount rate per period and n the number of periods. Equal payments add PMT × (1 − (1 + i)^−n) ÷ i, multiplied by (1 + i) if they arrive at the start of each period.
The discount rate is the return you could earn elsewhere with similar risk. A higher rate or a longer wait makes a future amount worth less today.
Present value is how lump-sum offers, pensions and bonds are compared: see the pension calculator and the bond calculator. The reverse is the future value calculator.
Worked examples
- 10,000 in 5 years at 6%: 10,000 ÷ 1.06^5 = 7,472.58
- 500 a month for 20 years at 8% ÷ 12: PV = 59,777.15
Frequently asked questions
What discount rate should I use?
The return you give up by waiting: for a safe payment, a deposit or government sukuk rate; for a risky one, a higher rate.
Why is a future amount worth less today?
Money held today can be invested and grow, and prices tend to rise, so the same amount later buys and earns less.
Does it match the spreadsheet PV function?
Yes, except the sign: spreadsheets show money you would pay as negative; here it is shown as a positive amount.
How does the rate change the result?
A higher rate means a lower present value, because money today could earn more in the meantime.
How do I use monthly payments?
Use a monthly rate and count periods in months. 6% a year for 5 years becomes 0.5% a period for 60 periods.
How is present value different from NPV?
NPV subtracts the initial cost from the present value of what you receive. For uneven cash flows, use the IRR calculator, which shows NPV.