The present value formula quantifies how fast the value of money declines. This formula shows you how much once single cash payment (FV) received in a future time period (t) is worth in today’s terms (PV).

PV = FV / (1+r)t

In the above definition, present value (PV) stands for the value of the money in today’s terms. Future Value (FV) stands for the amount of cash received in the future and this is the actual money received at a future date. r is the discount rate or the speed at which the decline in value is happening. It is also called the required rate of return for the investor. t is the time period in which the future value or cash is received. The time is normally expressed in number of years and the flows can be monthly, quarterly or yearly.