I have a requirement to calculate the present value of a future value taking into consideration an interest rate and tax rate. This is to be used in an insurance calculator so I need the answer to be a formula rather than in excel.

Given the example of a FV worth $175,000 in 20 years time, how do I calculate the PV of this amount with an annual interest rate of 5% accumulating on the principle and a tax rate of 20% which only applies to the interest earned on the principle?

Inflation does not apply as there are no drawings over the period.


The easiest way is to use the PV function in Microsoft Excel or Google Sheets. Due to the 20% tax, the interest rate is effectively 4% instead of 5%. The formula to use (assuming annual compounding of interest) is PV(0.04,20,0,175000): 4% interest, 20 periods (years in this case), no periodic payments, future value of $175,000. The answer is $79,867.72.

EDIT: Just saw that you wanted the formula rather than an Excel function, my bad. The formula is FV = PV x (1 + r)^n. FV is 175000, r is 0.04, n is 20. Solve for PV and you get 79867.72.

| improve this answer | |
  • Thanks Craig, it's easy when you know how. You have the FV formula in your solution, however I get the idea. – Brett G Feb 9 '16 at 23:28

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.