The discount rate formula for present value (PV) is a financial calculation used to determine the current worth of a future sum of money. The formula adjusts for the time value of money and is crucial in various scenarios, such as valuing investments, evaluating project returns, and determining loan affordability.
The formula considers the future value, the discount rate, and the number of periods. A higher discount rate results in a lower present value, reflecting the diminishing worth of future earnings over time. Understanding this concept is essential for making informed financial decisions.