What an amount you will receive in the future is worth today, discounted at a rate.
VA = VF ÷ (1 + r)ⁿ
What each letter means
- VF: Future amount
- r: Discount rate per period
- n: Number of periods
An example
With VF = €10,000, r = 5%, n = 5: Present value = €7,835.26.