Finance

Present Value

Formula

PV = FV / (1 + r)ⁿ

What is Present Value?

Present value calculates what a future amount of money is worth today, given a discount rate. This is the foundation of discounted cash flow analysis.

Variables

P
PV — Present value
F
FV — Future value
r
r — Discount rate per period
n
n — Number of periods

Worked Examples

Example 1

What is the present value of $1,000 received 3 years from now at 5% annual discount rate?

Solution:

PV = 1000 / (1.05)³ = 1000 / 1.1576 ≈ $863.84

Frequently Asked Questions

Related Formulas

Loan Payment (EMI)

EMI = P × r × (1+r)ⁿ / ((1+r)ⁿ − 1)

Future Value (Compound Interest)

FV = PV × (1 + r/n)^(n×t)

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