How it works
Present value answers: how much money today is equivalent to an amount received in the future? Because money today can be invested, a future dollar is worth less than a dollar now.
The discount rate is the return you could otherwise earn, or the rate that reflects the risk of waiting. A higher rate or a longer wait means a lower present value.
Add a regular payment to value an annuity, pension or structured settlement, and choose whether payments arrive at the start or end of each period.
Formula
PV = FV ÷ (1 + r)^n + PMT × (1 − (1 + r)^−n) ÷ r
Questions people ask
What discount rate should I use?
Use the return you could reasonably earn on an alternative with similar risk: a savings or Treasury rate for safe payments, a higher rate for uncertain ones.
What is the difference between present value and NPV?
Present value discounts future cash flows to today. Net present value subtracts the upfront cost, so a positive NPV means the investment beats your discount rate.
Should I take a lump sum or payments?
Compare the lump sum offer to the present value of the payments at a realistic discount rate. If the lump sum is higher, it is worth more in today's terms.