Definition
What a future sum of money is worth today, after discounting for the return you could earn in the meantime. It is compound interest run backward: $1,100 a year from now is worth $1,000 today at a 10% discount rate.
Why it matters
Present value is the honest way to compare money across time: a pension lump sum versus monthly checks, a settlement paid over years, or whether a pay-upfront discount is real. Any offer of future money is quietly a present value question.
Example
An offer of $50,000 paid ten years from now is worth about $30,700 today at a 5% discount rate ($50,000 divided by 1.05 raised to the tenth power). If a $35,000 lump sum today is the alternative, the smaller headline number is the better deal at that rate.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.