## Present Value of Money

The Present Value is the value of money at a point in time. Let's explain this using an example. Say we have $1000 which has been sitting in a bank accumulating 5% interest for the past 6 years but we don't know how much we put into the bank to get the $1000. The value which we put in the bank 5 years ago is known as the **Present Value**. It can be confusing because Present refers to now but in business terms in the above example Present Value is the Past Value. While the $1000 is known as the Future Value in this example. The formula for Calculating Present Value is as follows.

PV=FV(1+r)-n

Where;

PV=Present Value (Not yet know)

FV=Future Value, $1000

r=Rate, 5%

n=time reflected in years, 6

Our formula looks like this;

PV=1000 (1.06)-6

So we can use Excel to Calculate the answer for Present Value;

=1000*(1.05)^-6

The above example is of the data keyed into Excel. The formula is as follows.

=B2*(1+B3)^-B4

**$742 Invested= PV**

** 5% for 6 Years**

**Money grows to $1000=FV**

You can see from our example that the answer is $746. So 6 years ago we would have put this money in the bank to achieve $1000 today. The file attached shows the above method and Excel's PV formula.