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Present value

One krone in the future is worth less than one krone today, because today's krone can earn interest. The present value is the amount you must deposit today in order to have the future amount when the time has passed. You divide by the growth factor once per period. Several equal amounts, the first in one year, are a geometric series of such discounted amounts. The discount rate is the interest rate you use in the division.

Try it yourself

Net present value and IRR

V = \frac{B}{k^n}

one amount in n periods

V = a \cdot \frac{1 - k^{-n}}{r}

n equal amounts

Symbols

$k$	growth factor
$r$	interest per period
$a$	amount per period	NOK

Example

1000 NOK in one, two and three years, at 10% interest.

$V = \dfrac{1000}{1.1} + \dfrac{1000}{1.1^2} + \dfrac{1000}{1.1^3} \approx 2486.85$ NOK.

Move every amount to the same point in time before you add them.

Practise savings, loans and present value for free →

← A savings account · Annuity loan →

Part of Mathematics S2: Savings, loans and present value.