Signature
PV_t = V_t/(1+r)^t
| Inputs | Definition | Unit |
|---|---|---|
V_t | Undiscounted cost or health outcome occurring at time t | currency or the relevant health-outcome unit |
r | Annual discount rate expressed as a decimal | proportion per year |
t | Time between the reference point and the value, measured consistently with the rate | years |
PV_t | Value at the reference time of the quantity occurring at time t | same as V_t |
|---|
Function
Present-value discounting function
Maps future costs or health outcomes to values at a common reference time using the applicable discount rate and timing convention.
Try this function
Implementations
Excel
Calculate a single present value
Enter the rate as 3.5% or 0.035, not 3.5.
=Value/(1+DiscountRate)^Year
Assumptions
Discrete annual compounding
The formula applies annual discrete discounting; t may be fractional when the timing convention permits.
Consistent price and rate basis
Real values use a real discount rate and nominal values use a nominal discount rate.
Worked examples
Cost occurring in year 5
A £20,000 cost occurring five years after the reference point has a present value of approximately £16,839 at an annual discount rate of 3.5%.
PV_5 = 20000/(1.035)^5 = 16839.46
Common errors
Entering a percentage as a whole number
Entering 3.5 instead of 3.5% or 0.035 applies a 350% annual rate and severely understates present value.
Sources
NICE manual for single-value discounting
NICE. Health technology evaluations: the manual. Section 4.5 Measuring and valuing health effects in economic evaluations.
Canonical Identity
Stable URI · Machine-readable · Resolvable · CC BY 4.0