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How to Calculate Present Value.
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How to Calculate Present Value.

Rosemary Njeri

Present value, also known as discounted value describes how much a future sum of money is worth today.

The present value is conversely related to the discount rate. Thus, a higher discount rate implies a lower present value and vice versa.

Formula to calculate present value.

Calculate Present Value.

r = rate of return.

n= number of periods.

Example:

An investor invested for 5 years in a certain project with a 5% rate of return and earned $ 100,000. Determine the present value.

Calculate Present Value.

Thus, the present value is $ 78,353.62.

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