function calculatePresentValue() {
var futureValueInput = document.getElementById('futureVal');
var discountRateInput = document.getElementById('discountRate');
var periodsInput = document.getElementById('numPeriods');
var resultBox = document.getElementById('pvResultBox');
var resultDisplay = document.getElementById('pvDisplay');
var excelDisplay = document.getElementById('excelFormulaDisplay');
var fv = parseFloat(futureValueInput.value);
var ratePercent = parseFloat(discountRateInput.value);
var periods = parseFloat(periodsInput.value);
if (isNaN(fv) || isNaN(ratePercent) || isNaN(periods)) {
alert("Please enter valid numbers for all fields.");
return;
}
// Formula: PV = FV / (1 + r)^n
var rateDecimal = ratePercent / 100;
var denominator = Math.pow((1 + rateDecimal), periods);
var pv = fv / denominator;
// Formatting currency
var formattedPV = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2,
maximumFractionDigits: 2
}).format(pv);
// Display results
resultDisplay.innerHTML = formattedPV;
// Generate Excel Formula String for user reference
// Syntax: =PV(rate, nper, pmt, [fv], [type])
// Note: Excel FV is usually entered as negative to get a positive PV, or vice versa.
var excelString = "=PV(" + rateDecimal + ", " + periods + ", 0, -" + fv + ")";
excelDisplay.innerHTML = excelString;
resultBox.style.display = "block";
}
Understanding Present Value and Discount Rates
Present Value (PV) is a fundamental financial concept that states that a sum of money today is worth more than the same sum in the future. This is due to the potential earning capacity of money (via interest or investment returns) and the eroding effect of inflation.
The core of this calculation relies on the Discount Rate. This rate represents the expected rate of return or the cost of capital. By "discounting" a future sum back to the present, you can determine how much you should be willing to pay for that future cash flow today.
The Mathematical Formula
Before diving into Excel, it is helpful to understand the math occurring behind the scenes. The formula used by the calculator above is:
PV = FV / (1 + r)n
PV: Present Value
FV: Future Value (the amount you expect to receive)
r: Discount Rate (per period, expressed as a decimal)
n: Number of periods (years, months, etc.)
How to Calculate Present Value with Discount Rate in Excel
Excel makes this calculation incredibly simple using the built-in PV function. While you can manually type the formula above into a cell, the PV function is more standardized.
Excel Syntax
The formula syntax is: =PV(rate, nper, pmt, [fv], [type])
Step-by-Step Excel Instructions
Rate: Select the cell containing your discount rate (or type it manually, e.g., 0.05 for 5%).
Nper: Select the cell containing the number of periods (e.g., 10 years).
Pmt: Enter 0. This argument is for recurring payments (like an annuity). For a single lump sum calculation, this is zero.
[fv]: Enter the Future Value you want to discount. Crucial Note: In Excel financial functions, cash outflows are negative and inflows are positive. To get a positive Present Value result, enter your Future Value as a negative number (e.g., -10000).
[type]: You can generally omit this or type 0 (assumes payment at end of period).
Example: To find the present value of receiving $10,000 in 5 years with a 6% discount rate, type this into any Excel cell: =PV(0.06, 5, 0, -10000)
When to Use This Calculation
Calculating PV with a discount rate is essential for:
Investment Appraisal: Determining if a future payoff is worth the initial investment cost.
Business Valuation: Discounted Cash Flow (DCF) models rely entirely on this logic.
Retirement Planning: Estimating how much you need to save today to reach a specific monetary goal in the future.
Bond Pricing: Determining the fair price of a bond based on its future coupon payments and face value.
Use the calculator above to verify your Excel results or to perform quick ad-hoc valuations without opening a spreadsheet.