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Would you prefer receiving $10,000 today or wait a year to receive $10,000?

This is not a trick question, and hopefully, for at least the sake of illustration, you would rather receive $10,000 today rather than wait a year.

But what if, I offered you $9,000 today or $10,000 in a year. How do you know which opportunity you should pursue?

That's the point of a present value calculator - it will calculate today's value of a future amount that you can then use to decide whether to accept (or offer) the value as of today or to wait and accept (or offer) the future value amount.

How does the calculator calculate the present value (PV)?

The key to understanding the PV calculation is to realize that there is no "right" present value amount; there is only an "accurate" present value.

What?

More below

Enter either dates or number of days.

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PV and Discount Rate

The present value, also known as the present discounted value uses an input known as the "discount rate." We express the discount rate as a percentage, and it is used to calculate the PV. And while the calculation is exact (a change of one day changes the calculated result), the present value itself is a personal number.

Why is that?

It boils down to understanding the discount rate. You should select a discount rate equal to what you would expect to earn if you invested the money. How you invest the money is up to you. You might choose 10-year treasuries, currently earning about 2.5% a year or you might select real estate, and then you might assume a rate-of-return exceeding 10%.

In any event, the rate-of-return you earn on your investments is the value you should use for the discount rate.

If you would like to test the PV result for accuracy, you can use this future value calculator. Enter the calculated present value, the discount rate as the annual interest rate, and set the other options to match how you set this calculator. The calculated future value will match the future value you entered here.

The FV result confirms the accuracy of the present value calculation, and it should, in turn, give you confidence that if you accept a present value settlement that you'll achieve the expected future value result at your assumed rate-of-return.

Calculator's Features

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As you can see, this calculator gives the user the ability to enter a PV date (Today's Date) and an FV date. Notice that a change by one day changes the result.

I don't need to use any weasel words like "estimate" like you might find some sites using. This calculator is perfectly suitable to use for arranging a legal settlement imposed by a court, or for any other business or investment need.

If you are calculating the PV for a contract that is settling later, (i.e. not "today") you should enter for the PV date, the date the agreement closes.

In addition to the calculator being very accurate, it also supports 13 compounding frequencies. If your discount rate assumes a particularly compounding frequency, then you'll want to pick from the below list the one that matches.

  • Compounded Continuous
  • Daily
  • Weekly
  • BiWeekly
  • Twice Monthly
  • Every 4 Weeks
  • Monthly
  • BiMonthly
  • Quarterly
  • Every 4 Months
  • Semiannually
  • Annually
  • Exact/Simple

Questions? Comment? How can I make this calculator (and page) more useful?

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25 Comments on “Present Value Calculator”

financial online calculator Join the conversation. Tell me what you think.
    • Care to elaborate? What do you mean by format exactly? The layout? More importantly, what do you think would make it betters?

      • Dale Adkins says:

        Question: A solar system on a residence will save the Owner $3000 per year of electricity costs over the life of his 30 year mortgage. What is the present value of that savings?

    • What "discount rate" to use is up to the user. That is, there is no absolute right or wrong.

      When determining the discount rate, you could use several approaches. If you invest in the stock market, and for you, you earn on average 8% per year, you can use 8% for the discount rate to compare the present value with the pv of the stock market return.

      If you want to compare PV to something safer, you might use the US Treasury 10 year rate, which currently is at about 3.07%.

      If you care to say how the PV is going to be used or why you are calculating it, perhaps I’ll have a few more thoughts about what rate to use.

    • Thanks for the detail. That makes a difference. This is not the right calculator to use. Please use PV of an Annuity Calculator. This calculator is to be used when the user wants a PV of a single amount due sometime in the future. A lease, of course normally has monthly or at least periodic payments, which is what the recommended calculator will handle.

      Now, for the discount rate, assuming this lease is going to be purchased (or sold), the buyer and seller may want to use different discount rates.

      The buyer may feel that mutual funds and the lease have similar risks (mutual funds loss of value and the lessee not paying). In that case, the buyer would use their average mutual fund return rate, say 8%, to calculate the PV of the lease. After all, why would they pay more to purchase the lease if they can earn 8% in mutual funds? The buyer will always want to use the highest discount rate they can justify because the higher the discount rate, the lower the PV – or the lower the cost of the asset being purchased. In other words, the higher rate is conservative for the buyer.

      On the other hand, the seller may feel the tenants are reliable and the cash flow is safe. They’ll ask themselves why take a risk and put the money into the market where there is the risk of losing principal? In that case, the seller might just want to park the money in a 2% CD, so they’ll use 2% as their discount rate. Lower rates result in a higher PV. For the seller, the lower rate is more conservative. They’ll need to be paid a higher price so they can put the proceeds from the sale in a lower yielding CD to reduce the investment risk.

      Does this help?

    • Let me add one more thing since you might be saying to your self with these discount rates, no deal will ever happen. The seller will want too much and the buyer won’t be willing to pay.

      Of course, we know, deals do happen. The sell could just as easily think, I’m only making 8% on my initial investment, and now I have the opportunity to make 20% on my capital. So they’ll use 20% for the discount rate and any price the buyer is willing to pay above the PV using 20%, the seller will be happy.

      Or the buyer could think, I don’t invest in the market, and the best I can do is earn 2% in CDs. I need to make more. They decide they want to make at least 5%, so that’s the discount rate they use. Any amount the buyer pays that is less than the PV @ 5% is even a better deal than what the buyer was willing to pay.

      So an amount that is between the sellers 20% rate and the buyers 5% rate is a deal that makes both parties happy.

Comments, suggestions & questions welcomed...

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