Basic Present Value Calculator

Basic Present Value Calculator

Instructions:
  • Enter the Future Value, Discount Rate, Number of Years, and Compounding Frequency.
  • Click "Calculate" to calculate the Present Value and display it in the chart and result below.
  • Your calculation history will be shown in the table below the calculator.
  • Use "Clear" to reset the calculator and "Copy Result" to copy the present value to the clipboard.
Calculation History
CalculationPresent Value

Concepts

Present value (PV) is the value of a future sum of money today. It is calculated by discounting the future sum of money by a discount rate, which is the rate of return that can be earned on an investment.

The basic present value formula is as follows:

PV = FV / (1 + r)^n

Where:

  • PV is the present value
  • FV is the future value
  • r is the discount rate
  • n is the number of periods

Formulae

The following formulae can be used to calculate the present value of different types of cash flows:

  • Single cash flow:
    • PV = FV / (1 + r)^n
  • Annuity:
    • PV = A * [1 – (1 + r)^-n] / r
    • Where A is the annual payment
  • Perpetuity:
    • PV = A / r

Benefits

There are a number of benefits to using a basic present value calculator:

  • It can help you to make informed financial decisions. For example, you can use a present value calculator to compare the value of different investment options or to determine how much you need to save to reach a financial goal.
  • It can help you to avoid overpaying for assets. For example, if you are considering buying a house, you can use a present value calculator to determine the maximum amount that you should offer, based on the expected future cash flows from the property.
  • It can help you to understand the value of time. For example, you can use a present value calculator to see how the value of a future sum of money decreases over time due to inflation.

Interesting facts

  • The concept of present value has been around for centuries. It was first used by merchants in the Middle Ages to calculate the value of bills of exchange.
  • Present value is a fundamental concept in finance and economics. It is used to evaluate a wide range of financial assets and liabilities, including bonds, loans, stocks, and real estate.
  • Present value is also used in other fields, such as actuarial science and project management.

References

  • Financial Mathematics: An Introduction by Irvin H. Siegel and John W. Van Horne (2013)
  • Investments by Zvi Bodie, Alex Kane, and Alan J. Millerron (2018)
  • Corporate Finance by Richard Brealey, Stewart Myers, and Frank Allen (2016)

Examples

The following table shows some examples of present value calculations:

Cash flow typeFuture valueDiscount rateNumber of periodsPresent value
Single cash flow$10,0005%5 years$7,835
Annuity$1,0005%5 years$4,329
Perpetuity$1,0005%$20,000

Applications

Basic present value calculators can be used for a variety of applications, including:

  • Investment analysis: Investors can use present value calculators to compare the value of different investment options and to determine the expected return on an investment.
  • Loan analysis: Borrowers can use present value calculators to determine the monthly payments on a loan and to determine the total cost of a loan.
  • Financial planning: Individuals and families can use present value calculators to develop financial plans and to reach their financial goals.

Conclusion

Basic present value calculators are a valuable tool for anyone who wants to make informed financial decisions. They can be used to compare the value of different investment options, to determine the monthly payments on a loan, and to develop financial plans.

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