What is Present Value
Present Value, or PV, is defined as the current value of the future sum of money, calculated at a specified rate of return. The future cash flows would be discounted. Therefore, the basic idea goes like this:
If the discount rate is high, present value of the future cash flows would be lower.
The lower the discount rate, the higher would be the present value of future cash flows.
You must enter the desired future amount that you want.
- Enter the inflation rate per year.
- Enter the number of years of your investment.
- The Elearnmarkets Present Value Calculator helps you to assess your future benefits of investments.
- It helps you choose the best investment possible according to your investment goals and risk profile.
- It helps you choose the best annual plan.
- You can estimate the cost of an investment.
- It helps you determine the present value, which will mature after retirement age.
So, for valuing the future cash flows, you need to determine the approximate discount rate. The present value of money tells you if an amount today is worth more than the same amount in the future. It also shows the money you receive in the future is not worth the money you receive today.
How does the Present Value work?
For example, you receive Rs 10,000 today. It is worth more than Rs 10,000 received four years later. Why? It is because you get to earn an interest on the amount. It could be 4%-6% or more depending on where you invest the money. But if you get Rs. 10,000 after four years, you lose out on the rate of return.
If you receive money today, you buy goods or avail services at today’s rates. Here, comes the term inflation, i.e the rise in the prices of goods and services that makes things costly. In simple terms, inflation lowers the power of money that is purchased. For this reason, investment is of utmost importance today otherwise inflation eats up its value.
What is Present Value Calculator(PV)?
This online tool is a simulation that calculates the present value of a certain sum of money in the future. The present value is like compound interest in reverse. To achieve a future financial goal, a present value calculator is required which will estimate the current amount needed to achieve that.
Our present value calculator consists of a formula box, where you enter the future investment amount you desire, annual inflation rate and the number of years. The calculator will then display the present value of the investment.
How does a Present Value Calculator work?
The present value calculator calculates the present-day value (PV) of an amount that you receive in the future.
The mathematical formula for calculation of Present-day value (PV) of an amount goes like this:
PV = C / (1+r)^n PV = Present Value C = Cash Flow at a period n = Number of period r = Rate of return
You have the concept of the time value of money which shows you how money received today is worth more in the future. Suppose,you need Rs 1,00,000 precisely five years from today. You expect to earn 8% from an investment. Then the number of periods would be five.
C = Rs 1,00,000 n = 5 r = 8% PV = 1,00,000 / (1+0.08)^5 PV = Rs 68,058.
How to use the Elearnmarkets Present Value Calculators?
The Elearnmarkets Present Value Calculator shows the present value of a fixed sum in the future. To use this calculator follow these simple steps:
In this way, The Elearnmarkets Present Value Calculator will show you the present value of the amount that you seek at a future date.
Benefits of Elearnmarkets Present Value Calculator
Frequently Asked Questions(FAQ’s) on Present Value Calculator
How does the Elearnmarkets Present Value Calculator calculate the present value of an investment?
Well, you first need to enter a future amount that you seek at a later date. You also need toenter the interest rate. After that, enter the period in the number of years. The Elearnmarkets Present Value Calculator will calculate the present value of the investment.
How do you find the present value of future payments?
To determine the present value of a future amount, you need two values: interest rate and duration in the form of number of years.
How does the Elearnmarkets Present Value Calculator help you pick a good investment?
The future return of money gets impacted by inflationary pressures, number of years and so on. All these factors can affect your future returns. For these reasons, the actual equivalent amount of money in the future is never equal to a lump sum today. The Elearnmarkets Present Value Calculator shows you the amount you must invest today, to reach your future financial goal.
Is Elearnmarkets Present Value Calculator easy to use?
Yes, it’s absolutely a free tool that you can use from the comfort of your home. By this, you can calculate the present value of future investments, and pick the right investment to achieve your future financial goals.