PRESENT AND FUTURE VALUE
What is Future Value (FV)?
Future value (FV) is the value of a current at a specified date in the future based on an assumed rate of growth.
If, based on a guaranteed growth rate, a $10,000 investment made today will be worth $100,000 in 20 years, then the FV of the $10,000 investment is $100,000. The FV equation assumes a constant rate of growth and a single upfront payment left untouched for the duration of the investment.
FORMULA OF FUTURE VALUE
FV=I×(1+(R×T))where:I=Investment AmountR=Interest RateT=Number of yearsFuture value with simple interest is calculated in the following manner:
Future Value = Present Value x [1 + (Interest Rate x Number of Years)]
For example, Bob invests $1,000 for five years with an interest rate of 10%. The future value would be $1,500.
Future Value = $1,000 x [1 + (0.1 x 5)]
Future Value = $1,000 x 1.5
Future Value = $1,500
Future value with compounded interest is calculated in the following manner:
Future Value = Present Value x [(1 + Interest Rate) Number of Years]
For example, John invests $1,000 for five years with an interest rate of 10%, compounded annually. The future value of John's investment would be $1,610.51.
Future Value = $1,000 x [(1 + 0.1)5]
Future Value = $1,000 x 1.61051
Future Value = $1,610.51
Future Value = Present Value x [1 + (Interest Rate x Number of Years)]
For example, Bob invests $1,000 for five years with an interest rate of 10%. The future value would be $1,500.
Future Value = $1,000 x [1 + (0.1 x 5)]
Future Value = $1,000 x 1.5
Future Value = $1,500
Future value with compounded interest is calculated in the following manner:
Future Value = Present Value x [(1 + Interest Rate) Number of Years]
For example, John invests $1,000 for five years with an interest rate of 10%, compounded annually. The future value of John's investment would be $1,610.51.
Future Value = $1,000 x [(1 + 0.1)5]
Future Value = $1,000 x 1.61051
Future Value = $1,610.51
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