Using a Present Value Calculator to Plan for Future Expenses

By Stock Research Pro • February 17th, 2009

The Stock Research Pro Present Value Per Period Calculator answers the question: “If I need to be able to withdraw a specific amount of money over a number of time periods in the future, how much do I need to deposit today to be able to meet that need?” The calculator simply asks you to input the amount of money you will need for each time period, the number of time periods you will need to make these equal withdrawals and the interest rate you can earn on your initial lump-sum deposit. This calculator can be a valuable tool for financial planning purposes.

Understanding the Concept of Present Value

The concept of present value is a powerful one for personal finance. The concept says that, all else being equal, a rational investor prefers to receive a fixed amount of money today, rather than an equal amount at some point in the future. The reason for this is that the investor has the opportunity to earn interest on money received today, increasing the value of that lump-sum payment until that future date.

When applied to financial planning, the investor can determine how much needs to be set aside today in order to prepare for future expenses that will come in equal amounts and intervals. The concept and calculation can be used for such future expenses as a college education or retirement planning.

The Present Value Per Period Formula

The formula for the present value per period calculation can be written as:

w [(1 – 1 / (1 + r) ^n) / r] = P


w = future withdrawals
r = interest rate
n = number of periods
P = present value per period

Using the Stock Research Pro Present Value Per Period Calculator

(1) Enter the amount of money you will need for each future withdrawal
(2) Enter the interest rate you expect to earn on your initial deposit
(3) Enter the number of periods for which you will need to make withdrawals

The Deposit Amount is the amount of money you must invest in order to meet those future obligations.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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