What present value means
A dollar you get today is worth more than a dollar you get in ten years, because today's dollar can be invested and earn a return in the meantime. Present value turns that idea into a number: it is the amount you would need to invest today, at your chosen rate, to end up with the future money. Finding it is called discounting, and it is compounding run in reverse.
Present value lets you compare money at different times on equal terms. Is a $10,000 payment in ten years better than $6,000 today? At a 5% discount rate the future payment is worth $6,139.13 today, so it is slightly better. At 6% it is worth less than $6,000, so the cash today wins.
Choosing a discount rate
The discount rate is the return you could otherwise earn on money of similar risk, sometimes called your opportunity cost. For a guaranteed payment, a rate close to Treasury or CD yields for the same term makes sense. For an uncertain payment, such as a business's future profits, a higher rate allows for the risk that it may not arrive.
The rate has a large effect on long horizons. $50,000 due in 20 years is worth $18,844.47 today at 5% but $15,590.24 at 6%. When the answer matters, try a range of rates rather than relying on one.
Common uses
Comparing a lump-sum offer with a series of payments, such as a pension buyout, a structured settlement or lottery winnings. Valuing a bond, which is a stream of coupon payments plus a lump sum at maturity, exactly the combination this calculator handles. Deciding whether a cost now is worth future savings, as in net present value (NPV) analysis for a project or an energy upgrade.
Present value formulas
Lump sum: PV = FV ÷ (1 + i)^nPayments: PV = PMT × (1 − (1 + i)^−n) ÷ iPayments at the start of each period: multiply the payments result by (1 + i)- FV = future lump sum, PMT = regular payment
- i = annual discount rate ÷ periods per year, n = number of periods
Example
- You will receive $1,000 at the end of each year for 10 years, plus $10,000 at the end of year 10 (like a bond). Your discount rate is 5%.
- Lump sum: 10,000 ÷ 1.05^10 = $6,139.13.
- Payments: 1,000 × (1 − 1.05^−10) ÷ 0.05 = $7,721.73.
- Total present value: $13,860.87, compared with $20,000 received over the 10 years.
- If each $1,000 arrived at the start of the year instead, the payments would be worth 7,721.73 × 1.05 = $8,107.82.
Frequently asked questions
What is $10,000 in 10 years worth today?
At a 5% discount rate compounded yearly, $6,139.13. Compounded monthly at 5%, it is $6,071.61, because the monthly-compounded rate is slightly higher in effective terms.
What is the difference between present value and net present value?
Present value is what future cash flows are worth today. Net present value subtracts what you pay now: if a project costs $12,000 and its future cash flows have a present value of $13,860.87, its NPV is $1,860.87, and a positive NPV means it beats your discount rate.
Why does a higher discount rate give a lower present value?
A higher rate means today's money could grow faster, so you need less of it now to match the same future amount. For example, $100 due in one year is worth $96.15 today at 4% and $95.24 at 5%.
Should I include inflation in the discount rate?
Use a nominal rate (one that includes inflation) for future amounts stated in future dollars, which is most contracts and payments. Use a real, after-inflation rate only if the future amounts are already in today's dollars.
Sources
Last reviewed for 2026. How we calculate.