Present Value Calculator
Compare multiple scenarios in one set of results.
Each set of calculation during visit will be saved in this results area.
Present Value (PV) represents the current equivalent amount of a future lump sum for a specific interest rate and a number of periods the interest is compounding. Present Value is often called the value of an investment today.
Present Value formula is:
Important notes:
- The time frame (year, month, quarter etc.) must be the same for both, 'Interest Rate' and 'Number of Time Periods';
- This model assumes that the Interest Rates stay the same the entire period;
- This model uses compound interest method.
This Present Value calculator allows you to accomplish the following:
- Determine the current equivalent amount of a future lump sum given a specific interest rate and a number of periods the interest is compounding;
- Compare multiple scenarios, by showing each case in the results section.
Present Value calculator is part of the Time Value of Money calculators, complements of our consulting team.
Terms of use
- Complementarily, in order to calculate the Present Value, we offer a javascript calculator free of charge.
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You may link to this calculator from your website as long as you give proper credit to C. C. D. Consultants Inc. and there exists a visible link to our website.
To link to our Present Value calculator from your website or blog, just copy the following html code:<a href="http://www.ccdconsultants.com/calculators/time-value-of-money/present-value-calculator">Present Value Calculator</a> - Although C. C. D. Consultants Inc.'s personnel has verified and validated the Present Value calculator, C. C. D. Consultants Inc. is not responsible for any outcome derived from its use. The use of Present Value calculator is the sole responsibility of the user and the outcome is not meant to be used for legal, tax, or investment advice.
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
Answer: Present 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
Answer: Present 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
Answer: Present 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.