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Amount today is worth more than amount tomorrow. In many cases it becomes important to know the present value of accumulated return of an investment. This gives a clear idea to the investors about the worth of an investment. Present values can be calculated by using the formula given below.

PV= FV / (1+r)

Present Value = PV
Future Value    = FV
Discount rate   =  r

Example: Suppose George needs 4000 next year to purchase a new laptop. Interest rate is 7% per year. How much amount George should keep aside now in order to purchase Laptop; calculate present value of 4000 at 7% interest rate.

PV = 4000 / (1.07) = 3738.32

Note: George should invest 3738.32 for a year to purchase a laptop. If George has longer time to purchase a laptop he needs to investment less today. For example if George purchases laptop after two years, calculate present value by dividing future payment by (1.07)^2

PV= 4000 / (1.07)^2 = 3493.75

This time George just need 3493.75 today to pay 4000 after two years, It means that the level of investment will increase or decrease with the number of years.

### How to Find Interest Rate

For example: when George want to purchase a laptop at 4000 after one year and today he has to invest amount of 3738.38, but he does not know about interest rate. So he simply calculates interest rate: Close 