Investment
Present value of a stream of payments
Discount each payment individually by the number of periods until it arrives, then add them up. Payments further out shrink more, which is what produces realistic valuations for irregular streams.
The Formula
PV = sum of CF_t / (1 + r)^t for t = 1..n
Discount each payment individually by the number of periods until it arrives, then add them up. Payments further out shrink more, which is what produces realistic valuations for irregular streams.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| CF_t | Cash flow at period t | currency | Can differ every period; the index t is what makes timing matter. |
What Each Symbol Means
CF_tcurrency
Cash flow at period t
Can differ every period; the index t is what makes timing matter.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate present value page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Present Value, filed under Finance. Every number the guide produces comes from substituting into this one line.