How it works
PV = FV ÷ (1 + r)n + PMT × (1 − (1 + r)−n) ÷ r
- FV — future amount
- PMT — payment at the end of each year
- r — discount rate ÷ 100
- n — number of years
The discount rate is the return you could earn elsewhere with similar risk. Use a savings or bond rate for safe money and a higher rate for uncertain money.
Present value is how lottery lump sums, pension buy-outs, lawsuit settlements and business investments are compared: convert every option to today's money, then pick the largest.