Expert in time value of money, capital budgeting, and investment valuation.
The **Present Value of Single Deposit Calculator** determines the current worth of a lump sum amount that will be received or paid at a specific point in the future. This is known as discounting and is a fundamental concept in finance for making investment decisions. Enter values for any three of the four core parameters (Present Value, Future Value, Rate, or Time) to solve for the missing one.
Present Value of Single Deposit Calculator
Instructions: Enter values for any three of the four core parameters to solve for the missing one.
Present Value Parameters (Single Deposit)
Present Value Formula (Single Deposit)
The Present Value ($PV$) is calculated by discounting the Future Value ($FV$):
Present Value ($PV$):
$$PV = \frac{FV}{(1 + r)^{n}}$$ Formula Source: InvestopediaVariables Explained (P, F, V, Q – Parameters)
- $PV$ (Present Value, $P$): The current value of a future sum of money. (Calculated Value)
- $FV$ (Future Value, $F$): The lump sum amount to be received or paid in the future.
- $r$ (Discount Rate, $V$): The periodic interest rate used to discount the future value, expressed as a decimal (e.g., 6% becomes 0.06).
- $n$ (Number of Periods, $Q$): The total number of compounding periods (e.g., years, quarters, months).
Related Investment Valuation Calculators
Determine current worth and potential returns on future investments:
- Future Value of Single Deposit Calculator
- Net Present Value Calculator
- Discount Rate Calculator
- Real Return Calculator
What is Present Value of a Single Deposit?
The **Present Value (PV) of a single deposit** is a concept rooted in the Time Value of Money (TVM), which states that money available today is worth more than the same amount of money in the future due to its potential earning capacity. The PV calculation answers the question: “How much would I need to invest today to achieve a specific future value, given a constant rate of return?”
This tool is essential for accurately valuing future cash flows. For example, if you win a lottery payout of \$100,000 to be received in five years, the PV calculator tells you the true, lesser value of that payout in today’s dollars, after accounting for the opportunity cost (discount rate) over those five years.
How to Calculate Present Value (Example)
Assume you need \$15,000 in 5 years ($FV$), and your investment can earn a 6% annual rate ($r$). We solve for the Present Value ($PV$):
- Step 1: Identify Parameters
$FV = \$15,000$, $r = 0.06$ (6%), and $n = 5$ years.
- Step 2: Calculate the Discount Factor
$(1 + r)^n = (1 + 0.06)^{5} \approx 1.338225$.
- Step 3: Apply the PV Formula
$PV = FV / (1 + r)^{n} = \$15,000 / 1.338225 \approx \mathbf{\$11,208.66}$.
The Present Value (what you must invest today) is $\mathbf{\$11,208.66}$.
Frequently Asked Questions (FAQ)
Discounting is the process of finding the present value of a future cash flow. It is the reverse of compounding (finding the future value of a present cash flow).
The discount rate represents the required rate of return or the cost of capital. It accounts for inflation, risk, and the opportunity cost of investing the money elsewhere. A higher discount rate results in a lower present value.
Use PV when evaluating a future settlement, a one-time insurance payout, the value of a bond’s face amount, or when pricing any asset based on its future expected worth.
Yes. The present value of all future loan payments (Principal + Interest) must equal the original loan amount (Principal). The rate $r$ in this context is the loan’s interest rate.