Present value

The present value is the value in today's money assigned to an amount of money in the future.

The present value can also be used to estimate the effects of inflation; i.e., compute the real purchasing power of present and future sums. In this case the estimated inflation rate is used as nominal annual rate.

Examples

•

What is the present value of $500 due in 6 months at 7 % compounded quarterly?

Calculation	Single Payment

Input	Nominal annual rate:	7%
	Interest is compounded:	quarterly
	Periods:	monthly
	Number of periods:	6
	Single payment:	500

Result	Present value:	482.95

Answer: $482.95.

•

You have to pay $100 every year for 5 years. What value does this series represent today at an interest rate of 4 % compounded monthly?

Calculation	Periodic Payments

Input	Nominal annual rate:	4 %
	Interest is compounded:	monthly
	Payments are made:	annually
	Number of years:	5
	First payment:	100
	Periodic change: none

Result	Present value:	444.26

Answer: $444.26.

•

You will receive $1,000 in 10 years. What is that amount of money worth today, assuming an annual rate of inflation of 2.5% ?

Calculation	Single Payment

Input	Nominal annual rate:	2.5 %
	Interest is compounded:	annually
	Periods:	annually
	Number of periods:	10
	Single payment:	1,000

Result	Present value:	781.20

Answer: $781.20.

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