Present Value Calculator

Q: What is present value?

What a future amount of money is worth today, after discounting at a rate of return. $20,000 arriving in 10 years, discounted at 6%, is worth about $11,168 today — because $11,168 invested now at 6% would grow into that $20,000.

Q: What is the present value formula?

PV = FV ÷ (1 + r)^n for a lump sum; for a payment stream, PV = PMT × (1 − (1+r)^−n) ÷ r. r is the discount rate per period, n the number of periods.

Q: What discount rate should I use?

The return you could realistically earn instead — your opportunity cost. Risk-free comparisons use Treasury yields; investment comparisons often use 6%-10%; the higher the rate or the longer the wait, the less future money is worth today.

Q: How do I compare a lump sum to a series of payments?

Discount both to present value at the same rate, then compare. A $20,000 lump sum offered today versus $2,500 per year for 10 years discounted at 5%: the payment stream's present value is only about $19,304, so the lump sum is worth more even though the payments total $25,000 nominally.

Q: How sensitive is present value to the discount rate?

Very. $20,000 received in 10 years is worth about $14,882 today at a 3% discount rate, but only about $6,442 at 12% — more than a two-fold difference from the rate assumption alone, which is why the rate used is often the real point of negotiation.

Money later is worth less than money now. Find out exactly how much less — for a future lump sum or a stream of payments.

Written by the Calculator Index team · Last reviewed September 2026

Present value

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Future total (nominal)

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Discount applied

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The present value formulas

Lump sum: PV = FV ÷ (1 + r)ⁿ
Payment stream: PV = PMT × [1 − (1 + r)⁻ⁿ] ÷ r

Worked example

$20,000 arriving in 10 years, discounted at 6%:

PV = 20,000 ÷ 1.06¹⁰ = 20,000 ÷ 1.7908 = $11,168

Meaning: $11,168 invested today at 6% becomes exactly $20,000 in 10 years — so the two are financially equivalent.

Where PV earns its keep

Present value is how you compare options that pay out at different times: a lottery's lump sum vs. annuity offer (discount the annuity payments and compare), a pension buyout, a legal settlement, "0% financing" vs. a cash rebate, or whether a business investment's future cash flows justify its price (that's NPV — net present value — which is just PV of inflows minus cost). The entire answer hinges on the discount rate: at 3%, distant money holds most of its value; at 10%, money 20 years out is worth less than 15 cents on the dollar. When someone offers you future money, the rate they assume is where the negotiation actually lives. See also the mirror-image future value calculator.

Worked example — comparing a lump sum offer to a payment stream

A settlement offers a choice: $20,000 today, or $2,500/year for 10 years. Using a 5% discount rate on the payment stream:

PV = 2,500 × [1 − 1.05⁻¹⁰] ÷ 0.05 = 2,500 × 7.7217 = $19,304

Even though the payment stream totals $25,000 nominally — $5,000 more than the lump sum — its present value of $19,304 is actually less than the $20,000 offered today. The lump sum is the financially better choice at a 5% discount rate, purely because of when the money arrives.

How sensitive PV is to the discount rate

Discount rate	PV of $20,000 in 10 years
3%	$14,882
6%	$11,168
8%	$9,264
10%	$7,712
12%	$6,442

Common present value mistakes

Using one discount rate for both safe and risky cash flows. A guaranteed government payment and an uncertain business projection shouldn't be discounted at the same rate — the riskier cash flow deserves a higher rate to reflect the chance it doesn't materialize as promised.
Ignoring payment timing (ordinary annuity vs. annuity due). The standard stream formula assumes payments land at the end of each period. A stream paid at the start of each year is worth slightly more, since each payment is effectively discounted one period less.
Comparing nominal totals instead of present values. As the worked example above shows, a stream that adds up to more money on paper can still be worth less today — always discount before comparing, never just add up the raw dollar amounts.

Frequently asked questions

What is present value?

Today's worth of future money. $20,000 in 10 years at a 6% discount rate ≈ $11,168 now.

What is the present value formula?

Lump sum: FV ÷ (1+r)ⁿ. Stream: PMT(1−(1+r)⁻ⁿ)/r.

What discount rate should I use?

Your opportunity cost — Treasury yields for risk-free comparisons, 6–10% for investment-grade alternatives.

How do I compare a lump sum to a series of payments?

Discount both to present value at the same rate. $20,000 today vs. $2,500/yr for 10 years at 5%: the stream is worth only about $19,304 today, so the lump sum wins even though it totals less nominally.

How sensitive is present value to the discount rate?

Very — $20,000 in 10 years is worth $14,882 at 3% but only $6,442 at 12%. The assumed rate can swing the answer by more than double.

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Note: Assumes a constant discount rate and end-of-period payments. Not financial advice. Last reviewed: September 2026.