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Present Value (PV) calculates what a future sum of money is worth today, given a discount rate. It answers: "How much do I need to invest today to have $X in the future?" It is the inverse of future value and the cornerstone of financial valuation.
Trin-for-trin guide
- 1PV of lump sum: PV = FV / (1 + r)^n
- 2PV of annuity: PV = PMT × (1 − (1+r)^(−n)) / r
- 3Higher discount rates reduce present value (future money is worth less)
- 4The discount rate often represents opportunity cost or inflation
Løste eksempler
Input
$100,000 needed in 10 years, 7% discount rate
Resultat
PV = $50,835
You need $50,835 today invested at 7%
Input
$1,000/year for 20 years at 6%
Resultat
PV = $11,470
The lump sum equivalent of that annuity
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