A dollar tomorrow is worth less than a dollar today. PV tells you what a future amount — or a stream of payments — is worth now, given a discount rate. It’s the foundation of valuing loans, annuities, and investments.
The example
What is $1,000/year for 5 years worth today at an 8% discount rate?
| A | B | |
|---|---|---|
| 1 | Discount rate | 8% |
| 2 | Years | 5 |
| 3 | Payment/year | $1,000 |
| 4 | Present value | $3,993 |
The formula
Today’s value of that 5-year stream:
How it works
PV discounts future money to the present:
- The rate is the per-period discount rate (8% here); nper is the number of periods (5 years).
- The payment is the recurring amount, entered negative so PV returns a positive present value.
- PV sums each future payment discounted by how far away it is — five $1,000 payments are worth only ~$3,993 today, because later dollars are discounted more.
- For a single future lump sum instead of payments, use the 4th argument (future value):
=PV(rate, nper, 0, -futureAmount).
PV and FV are mirror images. PV asks “what is future money worth now?”; FV asks “what will today’s money be worth later?” A lump sum’s PV is FV / (1+rate)^nper — exactly what PV computes.
Try it: interactive demo
Value a recurring annual payment.
Variations
Present value of a lump sum
One future amount, no payments:
Monthly instead of yearly
Convert the rate and periods:
Is a deal worth it?
Compare PV to the asking price — pay less than PV to come out ahead.
Pitfalls & errors
Sign convention. Enter payments/future values as negative so PV returns a positive present value. Mixed signs flip the result.
Rate/period mismatch. Monthly payments need a monthly rate and a month count, just like PMT and FV.
The discount rate is an assumption. PV is only as good as the rate you choose — a higher rate values future money less.
Practice workbook
Frequently asked questions
How do I calculate present value in Excel?
What does present value tell me?
How are PV and FV related?
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