Present Value using the Table

A tool that aids in calculating present value is a present value table (PV). We multiply the amount for
which the current value must be computed by the necessary coefficient listed in the table to obtain the
present value. Various coefficients are included in a present value table depending on the period and
discount rate.

Present Value using the Table Formula

The present value table assists in calculating the present value of a known future amount, much like the
compound amount table does in the computation of compound amounts. When PV = A (1+i)^-n, the
value of (1 + i)^-n is the table factor in Table 2. The compound amount is thus multiplied by the table
factor to obtain the present value.

Present Value using the Table Example

For example, we need to calculate the PV of $1000 at a 5% discount rate over two years. Putting the
values in the formula, $1000*[1 / (1+5%)^2] or $1000*0.907 or $907. Here 0.907 is the coefficient.

Present Value using the Formula

According to the formula for present value, PV = A/(1+i)^n, present value is equal to future value divided
by the sum of 1 plus the annual percentage rate of interest multiplied by the number of time periods. It
is crucial that your time period, interest rate, and compounding frequency are all expressed in the same
time unit when utilizing this present value formula. If compounding happens monthly, for instance, the
number of time periods should be equal to the number of months of investment, and the interest rate
should be changed to a monthly interest rate rather than an annual interest rate.

Present Value using the Formula – Formula

PV=A(1+i)^n
Where,
PV = Present Values
A = Compound amount
i = Interest rate per period, expressed as a decimal
n =Total compounding periods

Present Value using the Formula Example

The default calculation above asks what is the present value of a future value amount of
$15,000 invested for 3.5 years, compounded monthly at an annual interest rate of 5.25%.

1. The calculator first converts the number of years and interest rate into terms of months since
compounding occurs monthly in this example
o 3.5 years × 12 = 42 months
 o So n = 42
2. Convert the annual interest rate of 5.25% to a monthly interest rate
o First convert the percentage to a decimal: 5.25 / 100 = 0.0525
o Then divide the annual rate of 0.0525 by 12 to get the monthly interest rate: 0.0525 / 12
= 0.004375
o So i = 0.004375
3. Do the calculation using the present value formula PV = A /(1+i) ^n

PV=A(1+i)^n

PV=15000(1+0.004375)^42

PV=15000(1.004375)^42

PV=150001.201233824

PV=12,487.16

References

Ballada, W. (2019). Math in the Business World (1st ed.); WIN Ballada and Susan Ballada Publishers.

“CalculatorSoup”. (n/d). Present Value Calculator, Basic. CalculatorSoup.

https://www.calculatorsoup.com/calculators/financial/present-value-calculator-basic.php

“Finance Management”. (2022). Present Value Table – Meaning, Important, How To Use It. Finance
Management. https://efinancemanagement.com/investment-decisions/present-value-table

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