Formula
Annual compounding, solved for the present lump sum:
Present value = future / (1 + rate) ^ years
A higher discount rate lowers today's value.
Assumptions
- You receive the future amount as one payment.
- The discount rate compounds once a year.
Worked example
$20,000 due in 10 years at a 5% discount rate is worth $12,278.27 today.
Input definitions
- Discount rate
- The yearly rate used to bring a future payment back to today.
Limitations
This is an estimate, not a loan offer, tax filing, or investment advice. The currency control changes the symbol only.
Questions
Why is today's value lower?
Money available later misses the growth it could have earned in the meantime.
What does a zero rate do?
The present value equals the future amount.