Discount a future lump sum — or a stream of regular payments — back to today's dollars using an assumed discount rate.
Present value (PV) is what a future sum of money — or a stream of future payments — is worth today, once you account for the fact that money arriving later is worth less than money in hand right now. It's calculated by discounting the future amount back to the present using an assumed interest, or discount, rate: the higher that rate, the less a given future amount is worth today.
A dollar in hand today can be invested and start earning a return immediately, so by the time a promised future dollar actually arrives, today's dollar has usually already grown past it. Inflation compounds the point — a dollar a decade from now will likely buy less than a dollar buys today — and there's also the simple risk that a promised future payment doesn't show up exactly as expected. Discounting bakes all of that into a single number you can compare directly against today's cash.
They're two directions of the same equation. Present value takes a future amount and discounts it backward to today; future value takes a present amount and grows it forward in time. If you know three of the four variables (amount, rate, time, and the value at the other end) you can solve for the fourth. Use the companion Future Value Calculator to run the calculation in the other direction — for example, to see what a lump sum or contribution plan grows to by a target date.
It depends on what you're evaluating. For a personal-finance estimate, many people use an expected long-run investment return — often somewhere in the 5-8% range for a diversified stock/bond portfolio — or a bank savings/CD rate for a more conservative comparison. Businesses evaluating a project often use their cost of capital instead. There's no single "correct" rate: a higher discount rate always produces a lower present value, because it assumes idle money elsewhere would grow faster, so the choice of rate should reflect what your money would realistically otherwise be doing.
A lump sum discounts a single future amount: PV = FV ÷ (1 + r)n. An annuity discounts a series of equal, regular payments received at the end of each period: PV = PMT × (1 − (1 + r)−n) ÷ r. Toggle between the two modes above depending on whether you're valuing a single payout (like a lump-sum inheritance or settlement) or a recurring stream (like a pension or fixed-payment annuity contract) — see the Compound Interest Calculator for the forward-looking version of the same lump-sum math.
Worked example: a $50,000 payment promised 10 years from now, discounted at a 6% annual rate, is worth 50,000 ÷ (1.06)10 ≈ $27,919.74 today — meaning you'd need to invest about $27,920 today at 6% annually to have exactly $50,000 in 10 years. By contrast, a $500-a-year payment stream for 10 years at the same 6% rate is worth only 500 × (1 − 1.06−10) ÷ 0.06 ≈ $3,680.04 today, since it's ten much smaller payments rather than one lump sum.