1. What is Present Value of Stream of Payments?

The present value (PV) of a stream of payments is the current worth of a series of future cash flows given a specific discount rate. It accounts for the time value of money, recognizing that money available now is worth more than the same amount in the future.

2. How Does the Calculator Work?

The calculator uses the present value formula:

Where:

• \( PV \) — Present value in USD
• \( Payment_t \) — Payment at time t in USD
• \( r \) — Discount rate (decimal)
• \( t \) — Time period (unitless)

Explanation: The formula discounts each future payment back to its value today and sums all these discounted values.

3. Importance of Present Value Calculation

Details: PV calculations are essential for investment analysis, capital budgeting, loan amortization, and comparing financial alternatives with different cash flow patterns.

4. Using the Calculator

Tips: Enter payments as comma-separated values (e.g., "100,200,300"). The discount rate should be in decimal form (e.g., 0.05 for 5%). All values must be valid (payments > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between PV and NPV?
A: PV calculates the present value of future cash flows, while NPV (Net Present Value) subtracts the initial investment from the PV of future cash flows.

Q2: How does the discount rate affect PV?
A: Higher discount rates result in lower present values, as future cash flows are discounted more heavily.

Q3: Can I use this for irregular cash flows?
A: Yes, this calculator is specifically designed for uneven payment streams.

Q4: What time periods does this assume?
A: The calculator assumes each payment occurs at the end of consecutive periods (t=1, t=2, etc.).

Q5: How accurate is this calculation?
A: The calculation is mathematically precise, but the accuracy depends on the reliability of your cash flow projections and discount rate estimate.