Present value: what future money is worth today
A dollar promised in the future is worth less than a dollar in hand today, because money in hand today can earn interest between now and then. Present value puts a number on exactly how much less — discounting a future amount back to what it's worth right now, at a stated rate.
The formula
Present value = future value ÷ (1 + rate ÷ 100)years. The rate is whatever return you could otherwise earn on the money — a savings rate, a bond yield, or your own required return. A higher rate or more years both push the present value down, because the money either has longer to have earned that return, or must clear a higher hurdle to be worth waiting for.
A real example: $10,000 ten years from now
Someone is promised $10,000 in exactly 10 years, and the going rate on safe savings is 5% a year.
- Growth factor:
(1 + 5 ÷ 100)10 = 1.0510 ≈ 1.628895. - Present value:
$10,000 ÷ 1.628895 ≈ $6,139.13.
$10,000 a decade out is worth about $6,139.13 today at a 5% discount rate — a $3,860.87 gap between the number on the promise and what it's actually worth right now.
A real example: comparing two payouts of the same size
Two offers each promise $20,000, discounted at the same 5% rate — one paid in 3 years, the other in 10.
- In 3 years:
$20,000 ÷ 1.053 = $20,000 ÷ 1.157625 ≈ $17,276.75. - In 10 years:
$20,000 ÷ 1.0510 = $20,000 ÷ 1.628895 ≈ $12,278.27.
Same $20,000 headline figure, but the 3-year payout is worth $4,998.49 more today than the 10-year one — nearly $5,000 of difference created entirely by timing, with the dollar amount on the offer never changing.
A real example: why the discount rate matters as much as the wait
A $5,000 payment arrives in 3 years either way; only the discount rate differs.
- At 4%:
$5,000 ÷ 1.043 = $5,000 ÷ 1.124864 ≈ $4,444.98. - At 8%:
$5,000 ÷ 1.083 = $5,000 ÷ 1.259712 ≈ $3,969.16.
Doubling the discount rate, from 4% to 8%, drops the present value by $475.82 even though the future payment and the wait are both unchanged. The rate you pick isn't a rounding detail — it does as much work in the answer as the number of years does.
What this doesn't capture
This assumes a single lump sum and one constant rate for the whole period; a rate that changes year to year, or a series of payments instead of one, needs a different (if related) calculation. It also isn't inflation-adjusted unless the rate entered already is — mixing a nominal rate with a real-terms question quietly changes the answer, and this tool has no way to know which one you meant.
Run your own numbers
The free Present Value calculator runs this instantly from your own future amount, rate and years — entirely on your device.