Present value runs the time-value-of-money machinery in reverse. Instead of asking what money will grow into, it asks what future money is worth right now. That is the question behind pricing a bond, valuing a legal settlement or lease, comparing a payout today with one later, or deciding how much an income stream is worth paying for. This calculator handles a future lump sum, a series of level payments, or both at once.
How to use the present value calculator
- Enter the future value — a single amount received at the end — if there is one.
- Enter the payment each period if there is a level stream of payments.
- Enter the number of periods (N) and what one period represents.
- Enter the discount rate as an annual nominal rate and choose the compounding. “Once per period” matches compounding to the payment schedule.
- Choose whether payments arrive at the end or beginning of each period.
The table shows every period’s cash, its discount factor and its value today.
Present value formula
i is the discount rate per period and type is 1 when payments come at the start of each period. The first term discounts the lump sum; the second is the present value of an annuity.
Worked example
A structured settlement will pay $500 at the end of each year for 10 years plus a final $25,000 in year 10. You could otherwise earn 6%.
- PV of the $25,000: $25,000 ÷ 1.0610 = $13,959.87
- PV of the payments: $500 × (1 − 1.06−10) ÷ 0.06 = $3,680.04
- Present value: $17,639.91, against $30,000 of undiscounted cash
If the payments arrived at the start of each year, the PV would rise to $17,860.72. The spreadsheet check is =PV(0.06, 10, 500, 25000, 0), which returns −17,639.91.
Pricing a bond with present value
A bond is exactly this calculation: coupons are the payments and the face value is the future value. Take a $1,000 bond paying a 5% coupon semiannually ($25 every six months) with 10 years (20 periods) to maturity:
| Market yield | Rate per half-year | Bond price |
|---|---|---|
| 4% | 2.0% | $1,081.76 |
| 5% | 2.5% | $1,000.00 |
| 6% | 3.0% | $925.61 |
When the market yield equals the coupon rate, the bond prices at par. When yields rise, its price falls — the inverse relationship that drives bond markets.
Present value pitfalls
- Rate and period must match. A 6% annual rate with monthly payments needs a monthly rate, which the calculator derives for you when you set the period to a month.
- Small rate changes, big value changes. Long horizons magnify the effect of the discount rate; test a range before relying on one number.
- Nominal vs. real. Fixed-dollar payments lose buying power to inflation; discount them at a nominal rate.
For a single future amount with a sensitivity table, see the present value of a future sum calculator. For payments that grow or last forever, use the present value of annuity calculator; for irregular amounts, the present value of cash flows calculator.
Valuations depend on the discount rate you choose and are estimates for analysis, not financial advice.
Frequently asked questions
What is present value?
Present value is what money to be received in the future is worth today, given a rate of return you could otherwise earn. Because money available now can be invested, a dollar due later is worth less than a dollar in hand.
How do I choose a discount rate?
Use the return you could earn on an alternative of similar risk. For a safe promise, a Treasury yield of similar maturity is a reasonable benchmark; for riskier income, use a higher rate. The result is very sensitive to this choice.
Can I use this to price a bond?
Yes. Enter the face value as the future value, the coupon as the payment, and the number of coupon periods. For a typical semiannual bond, set one period to a half-year and enter the market yield as the annual rate. A $1,000, 5% bond with 10 years left is worth about $925.61 when market yields are 6%.
Why does the spreadsheet PV function return a negative number?
Spreadsheets treat money received as positive and money paid as negative. If you will receive the payments and the future value, PV comes back negative — it is the amount you would pay today. The calculator shows it as a positive value.
What is the difference between present value and NPV?
Present value values a stream of future cash flows. Net present value subtracts the upfront cost of acquiring that stream, telling you whether the purchase adds value at your required return.