Present Value
Present Value
\[PV = \frac{FV}{(1+r)^t}\]
Variables
PV = present value
FV = future value
r = interest rate per period
t = number of periods
Description
What is this formula?
The present value formula calculates the current worth of a future amount of money discounted at a specific interest rate.
When to use it
Use this formula when evaluating investments, loans, or future cash flows in today's monetary value.
Example
If a future payment of 5000 USD will be received in 4 years with a discount rate of 7%:
PV = 5000 / (1 + 0.07)^4 ≈ 3814.08 USD
Applications
Investment valuation, loan analysis, discounted cash flow calculations, and financial decision making.
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