If you enter a value other than zero for the "Number of Days", then this calculator will calculate the "Future Value Date" for you as "Present Value Date" plus "Number of Days".
Present value is the opposite of future value (FV). Given $1,000 today, it will be worth $1,000 plus the return on investment a year from today. That's future value.
If you are schedule to receive $10,0000 a year from today, what is its value today, assuming a 5.5% annual discount rate? The "annual discount rate" is the rate of return that you expect to receive on your investments. This is a personal number. There is no "right" answer, though you want to use a realistic number based on your investment history. The discount rate will vary from individual to individual.
Enter $10,000 as the future value (never type the currency symbol or commas), set the start date and end date for one year's duration and set the discount rate to 5.5%. Assume monthly compounding and a 365 day year.
The PV is $9,466.04. You could accept $9,466.04 today in lieu of $10,000 in a year. The two amounts are equal.
Date Math: If you change either date, the number of days between the two dates will be calculated. If you enter a positive number of days, the future value date will be updated. If you enter a negative number of days the present value date will be updated.
A present value (PV) calculator is used for calculating today's value of a future amount.
Frequently, such a calculator would be used to determine what the cash value of future settlement is worth. If a settlement dictates that $25,000 is to be paid two years in the future but the party receiving the settlement is not comfortable waiting two years, then they could settle for a lesser cash amount today. The amount that they would settle for is the present value. The PV will vary from individual to individual depending upon the "annual discount rate" used. The "discount rate" is the rate of return the user normally expects to earn on their investments.
Please click on the above "Help" button for details.
If you need to calculate the PV for a series of future payments, you can use our new online, present value of a series calculator. If you want to calculate the present value of a series where the cash flows are expected to change — for example as in an alimony settlement — then use our SolveIT! program for Windows. SolveIT! allows the user to adjust the amounts within the series, to save their work and to print a present value schedule.
PV formula to use when you are assuming compounding:
Present Value = FV /(1 + Periodic Rate)Periods
PV formula to use when you assume no compounding:
Present Value =
FV / (1+((Rate/100) * (Days/Days In Year)))
FV is the anticipated future amount.
Rate is the annual interest rate or desired return expressed as a percentage. (It is divided by 100 to convert it to a decimal.)
Days is the entire term expressed as the number of days.
Days in the year, is just that. Normally the options are 360 or 365 day years. Some calculations use a 364 day year.
Periods is the entire term expressed as the number of periods or fraction thereof.
Periods Per Year are the number of compounding periods in the year. So if compounding is monthly, then this value would be 12.
Periodic Rate = Annual Rate / Periods Per Year / 100
Example of common periods per year: Annually: 1, Monthly: 12 and Weekly 52.
If simple interest or daily compounding is required then the equation is modified:
Periodic Rate = Annual Rate / Days Per Year / 100
For this example, we consider one problem and compare the results when you assume you can earn daily compounding on your investments vs when you assume no compounding. That is, the investment is earning simple interest.
You have lent your nephew money to expand his business and he and you have agreed the he will pay the loan off in three years, with one single payment of $50,000 which includes interest. He comes to you in just one year and he wants to pay the loan in full by giving you $45,350. You normally expect to earn 5.0% compounded daily on your investments. So, looking at this strictly from a financial point of view, is it better for you to receive $45,350 today or $50,000 in two years? We get these results using the PV formula with compounding:
$45,251.27 = 50,000 / (1+(5.0/365/100))730
Here are the results if you still assume a 5.0% return on investments, but with no compounding.
$45,454,55 = 50,000 / (1+((5.0/100)*(730/365)))
As you can see, with the same facts, assuming simple interest results in a higher PV. Why is this? If you are not sure, drop us an email and we'll be happy to share with you the answer.
What's the practical benefit of knowing this? Well, if you are ever owed money that isn't due until sometime in the future and you are either worried about the ability to collect the money when it is due or you are offered an earlier payout for a reduced amount, it's good to know how much you need to receive to remain whole. Understanding present value calculations makes this possible.
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Time Value of Money