What the Present Value Calculator does
This present value calculator tells you what money received in the future is worth today at a discount rate you choose. It handles a single lump sum, a stream of regular payments, or both together; payments can be level or grow each year, and can arrive at the start or the end of each period, with any compounding frequency.
Present value is how you compare a lump sum now with an income later, price a lease or a settlement, or decide what a future promise is worth to you. The page shows the formula it used, the discount factor for every payment, and how much of the face value the discounting removes.
How to use it
- Enter a lump sum received at the end, a regular payment, or both. Set how many payments a year and for how many years.
- Tick the start-of-period box if payments arrive at the beginning of each period, as rent usually does. That is an annuity due.
- Enter the annual discount rate - the return you could otherwise earn, or your cost of borrowing - and how often it compounds.
- For rising payments, enter the yearly growth. Then read the present value, the split between lump sum and payments, and the discount table.
Reading the results
The present value is the amount that, invested today at the discount rate, would reproduce exactly the future money you entered. If someone offers you more than this today, taking it now is better at that rate; less, and waiting is better.
The discount rate drives everything. A higher rate makes future money worth less today. Choosing it is a judgement, not a calculation - try a range of rates to see how sensitive your decision is.
Later payments are discounted more heavily than earlier ones. The chart shows each payment next to what it is worth today; the gap widens with time.
Worked example: a lump sum and a growing rent
You will receive 10,000 in 5 years and can earn 6% a year compounded yearly elsewhere. The present value is 10,000 / 1.06^5 = 10,000 / 1.338226 = 7,472.58. Having 7,472.58 today and investing it at 6% gets you to the same 10,000.
A 20-year income of 500 a month, discounted at 8% compounded monthly, is worth 59,777.15 today - the same value the spreadsheet PV function gives for these inputs, although 120,000 is paid in total.
Rent of 18,000 a year paid in advance, rising 3% a year for 10 years, discounted at 7%: the first payment is worth its face value, the second is 18,540 / 1.07 = 17,327.10, the third 19,096.20 / 1.07^2 = 16,679.36, and the whole stream is worth 152,549.34 today.
Formulas and scoring rules
- Rate per payment period
i = (1 + r / m)^(m / p) - 1r annual rate, m compounding periods a year, p payments a year. When m = p, i = r / m.- Lump sum
PV = FV / (1 + i)^(years x p)- Level payments
PV = P x (1 - (1 + i)^-n) / in = years x p, rounded to whole payments.- Growing payments
PV = P / (i - g) x (1 - ((1 + g) / (1 + i))^n), and n x P / (1 + i) when i = gg is the growth per period, (1 + yearly growth)^(1/p) - 1.- Payments at the start
PV_due = PV_ordinary x (1 + i)Money shown to 2 decimals; factors to 6.
Choosing a discount rate
For a personal decision, use the rate you could realistically earn on money with similar risk - a savings or deposit rate for a guaranteed payment, a higher rate for an uncertain one. For a business, the cost of capital or a hurdle rate is usual. Legal settlements and pensions sometimes specify the rate to use.
If inflation matters, be consistent: discount nominal payments with a nominal rate, or payments in today's money with a real rate. Mixing the two is a common way to get a present value that is too high or too low.
Limitations: what the result does not prove
- It assumes the payments are certain. If they might not arrive, a higher discount rate or a probability-weighted amount is needed, which is your judgement to make.
- Payments are assumed to be equal-spaced; growth is applied smoothly per period. For irregular dates use the XIRR or NPV tools.
- Taxes and fees are not included unless you net them out of the amounts first.
- It does not tell you which discount rate is right, only what follows from the one you choose.
Privacy: where your data goes
Everything you paste, type or drop is processed in this browser tab. It is not uploaded, logged, stored or sent to analytics. Session recording and tag-manager scripts are switched off on this page.
Standards and sources
Frequently asked questions
What is present value in simple terms?
It is today's price of future money. At a 6% discount rate, 10,000 in five years is worth 7,472.58 now, because 7,472.58 invested at 6% for five years grows to 10,000.
What is the difference between an ordinary annuity and an annuity due?
In an ordinary annuity each payment arrives at the end of its period; in an annuity due it arrives at the start. Because every payment comes one period sooner, an annuity due is worth more - exactly (1 + i) times as much.
Should I take a lump sum or monthly payments?
Discount the payments at the rate you could earn yourself and compare the present value with the lump sum on offer. If the lump sum is larger, it is worth more at that rate. Also consider tax, risk that payments stop, and whether you need a guaranteed income.
How does compounding frequency change present value?
More frequent compounding at the same nominal rate means a higher effective rate, so future money is discounted slightly more and the present value falls a little. 6% compounded monthly is about 6.17% a year effective.
How do I value payments that increase every year?
Use the growing annuity formula: enter the growth per year and the calculator applies it to each payment. With 7% discounting and 3% growth, a 10-year rent of 18,000 paid in advance is worth 152,549.34 today.
Is present value the same as NPV?
Net present value is the present value of all inflows minus the present value of all outflows, including the initial cost. This page values one side - what you will receive. For a full investment appraisal with costs, use the NPV or IRR calculator.
Last reviewed by the A2Z.Tools team against the sources listed above.
