Pv Discount Rate Calculator

Calculate the implied discount rate from Present and Future Values

Present Value (PV)

Future Value (FV)

Number of Periods (Years)

Implied Annual Discount Rate

What is the PV Discount Rate?

The Present Value (PV) discount rate is the annual rate of return used to discount a future amount of money back to its equivalent value today. In corporate finance and investment analysis, this rate is often used to determine the Internal Rate of Return (IRR) or to assess the yield on an investment given its current price and expected future payoff.

How to Calculate the Discount Rate

The formula for finding the discount rate (r) when the Present Value (PV), Future Value (FV), and Number of Periods (n) are known is derived from the standard compound interest formula:

            r = (FV / PV)1/n – 1
        

Example Calculation:

Present Value (PV): $1,000
Future Value (FV): $1,500
Time (n): 5 years
Math: (1,500 / 1,000)^(1/5) – 1 = 1.5^0.2 – 1 ≈ 0.08447
Result: 8.45% annual discount rate.

Why This Rate Matters

Investors use this calculation to compare different opportunities. If an asset costs $500 today and is guaranteed to pay $800 in 3 years, calculating the discount rate (16.96%) allows the investor to compare that return against other benchmarks like the stock market or bond yields. It represents the "hurdle rate" that the investment must clear to be considered profitable relative to inflation or alternative risks.

function calculateDiscountRate() { var pv = parseFloat(document.getElementById('presentValue').value); var fv = parseFloat(document.getElementById('futureValue').value); var n = parseFloat(document.getElementById('numPeriods').value); var resultDiv = document.getElementById('pvResultArea'); var resultText = document.getElementById('discountRateResult'); if (isNaN(pv) || isNaN(fv) || isNaN(n) || pv <= 0 || fv <= 0 || n <= 0) { alert("Please enter positive numeric values for all fields."); resultDiv.style.display = "none"; return; } // Formula: r = (FV / PV)^(1/n) – 1 var rate = Math.pow((fv / pv), (1 / n)) – 1; var percentageRate = rate * 100; resultText.innerHTML = percentageRate.toFixed(2) + "%"; resultDiv.style.display = "block"; }