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Present Value (PV)
About Present Value (PV) Calculator
How It Works
Present Value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. It is based on the concept of the 'time value of money', which suggests that a dollar today is worth more than a dollar tomorrow due to its potential earning capacity. The process of calculating PV is called 'discounting'.
Formula
The basic formula for Present Value is:
PV = FV / (1 + r)^n
Key Terms
- Future Value (FV)
- The amount of money expected at a future date.
- Discount Rate (r)
- The interest rate used to discount future cash flows (often the expected rate of return or inflation rate).
- Number of Periods (n)
- The length of time until the future value is realized (usually in years).
- Present Value (PV)
- The current worth of the future sum of money.
