Present Value Calculator

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Present Value formula is:

 Present Value formula

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Definitions and terms used in Present Value Calculator

Future Value
The lump sum expected to receive or pay in the future.
Interest Rate Per Period
The rate at which the interest for the use of money is charged or paid. Usually, the interest rate is expressed as a percentage and noted on annual basis.
Number of Time Periods
The number of time the interest is compounded (year, month, quarter etc.) and must have the same time frame as ‘Interest Rate Per Period’.
Compound interest
The interest that increases exponentially over time periods. The interest earning interest.

Present Value Examples

Example 1:

You want to receive 250,000 in 7 years. How much should you invest today at 3.25% annual interest rate compounded annually?

Future Value (FV) = 250,000

Interest Rate Per Period = 3.25%

Number of Time Periods = 7

AnswerPresent Value = 199,852.50

If you invest 199,852.50 today, at a rate of 3.25 % per year compounded annually, you will receive 250,000.00 after 7 years.

 

Example 2:

You want to receive 250,000 in 7 years. How much should you invest today, assuming a 3.24% annual interest rate compounded monthly?

Future Value (FV) = 250,000

Interest Rate Per Period = 3.24% / 12 = 0.27%

Number of Time Periods = 7 * 12 = 84

AnswerPresent Value = 199,330.96

If you invest 199,330.96 today, at a rate of 3.24 % per year compounded monthly, you will receive 250,000.00 after 7 years.

 

These examples show the effect of compounding interest. At certain point, a lower annual interest rate compounded more often can generate higher return than a higher interest rate compounded less frequent.

 

Example 3:

You are offered to receive 50,000 in 5 years at 4% annual interest rate compounded quarterly. How much should you invest today?

Future Value (FV) = 50,000

Interest Rate Per Period = 4% / 4 = 1%

Number of Time Periods = 5 * 4 = 20

AnswerPresent Value = 40,977.22

If you are asked to invest more than 40,977.22 today, you should decline the offer, since you will earn more than 50,000 within the above parameters if you invest more than 40,977.22 today.