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Calculate the present value of a future sum of money, discounted at a given interest rate.
PV = FV / (1 + r)^n
Where FV = future value, r = annual discount rate, n = number of years
Present value (PV) is the current worth of a future sum of money, discounted at a specific interest rate. It answers: how much would I need to invest today to have a given amount in the future?
The discount rate represents your expected rate of return or opportunity cost of capital. Common choices are the risk-free rate (Treasury yield), expected market return (7-10%), or your cost of capital.
Due to the time value of money — money available now can be invested to earn returns. Inflation also erodes purchasing power over time, making future dollars worth less in real terms.
PV is foundational to bond pricing, stock valuation (discounted cash flow), lease accounting, retirement planning, and any decision comparing cash flows at different points in time.
Present value (PV) discounts a single future cash flow. Net Present Value (NPV) discounts multiple cash flows over time and subtracts the initial investment to determine if a project adds value.