Calculate the present value of a future sum of money based on a discount rate and time period.
This calculator computes the present value of a future sum of money — what an amount you'll receive (or need) at some point in the future is worth in today's dollars, given a discount rate. It's the inverse of a future value calculation: instead of asking "what will this grow to?", it asks "what is that future amount worth right now?"
Present value "discounts" a future amount back to today by reversing the compounding process: it asks what amount, if it grew at the discount rate every year for the number of years entered, would become the future value.
Formula: Present Value = Future Value ÷ (1 + Discount Rate)Years. The difference between the future value and the present value is sometimes called the "discount" - the amount that compounding growth would add over that period.
Example: A future value of CA$10,000 due in 5 years, discounted at 5% annually (example rate — enter a rate appropriate to your situation), has a present value of about CA$7,835.26 - meaning CA$7,835.26 invested today at 5% annual growth would become CA$10,000 in 5 years. The CA$2,164.74 difference represents the time value of money over that period. (Note: this example is for illustration purposes only.)
Present value is the foundation of the time value of money - the idea that a dollar today is worth more than a dollar in the future, because today's dollar can be invested and grow. This concept underlies decisions like comparing a lump-sum payout to a series of future payments (for example, choosing between a pension lump sum and an annuity - see our Pension Calculator and Annuity Calculator), evaluating a settlement or court award payable over time, or deciding whether a future tax refund or rebate is worth waiting for versus other options. The discount rate you choose matters a great deal - a higher discount rate produces a lower present value, reflecting either a higher expected investment return (a higher opportunity cost for tying up money now) or greater uncertainty about receiving the future amount. For retirement planning specifically, present value calculations can help you understand what a future RRSP or pension payout is "worth" in today's terms when comparing it to other current options. Present value is also the mathematical inverse of future value (see our Future Value Calculator): the same formula and rate connect a present amount to a future amount in both directions.
Present value answers "what is a future amount of money worth today?" Future value answers the reverse question: "what will a present amount of money grow to by a future date?" Both use the same compounding relationship and rate - present value discounts backward from a future amount, while future value projects forward from a present amount. See our Future Value Calculator for the reverse calculation.
The discount rate should reflect your opportunity cost - what you could reasonably expect to earn if you invested the money elsewhere over the same period, or your borrowing cost if that's more relevant to your decision. A higher discount rate reflects a higher required return (or greater uncertainty), and results in a lower present value for the same future amount.
Because money available today can be invested to grow over time. If CA\$7,835.26 invested today at 5% annual growth becomes CA\$10,000 in 5 years, then CA\$10,000 received in 5 years is only "worth" CA\$7,835.26 to you today - receiving it later means missing out on that growth potential, which is the time value of money.
This calculator handles a single future amount discounted back to a single present value. If you're comparing a lump sum to a series of payments (like an annuity or pension), you would generally need to calculate the present value of each future payment and sum them - our Annuity Calculator and Pension Calculator are more directly suited to that comparison.
Not directly - the discount rate you choose can implicitly account for inflation if you select a rate that reflects your expected real (after-inflation) return, or you can use a nominal rate if you want the present value in nominal dollars. The calculator itself doesn't separate inflation from other factors in the discount rate.
There's no single right answer - some people use a conservative rate reflecting low-risk returns (like GICs or bonds), while others use a rate closer to their expected investment portfolio return. A higher rate will make future amounts (like a future pension payment) look smaller in today's terms, so being realistic but not overly optimistic about your rate is generally a sound approach for planning purposes.
Disclaimer: The information, rates, and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The discount rate used is an example only and does not represent a guaranteed or recommended rate for any specific situation. This calculator does not account for taxes or inflation. Always consult a qualified financial adviser for personalised financial planning.