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future value

Page history last edited by PBworks 15 years, 9 months ago

Future Value

 

value of sum after investing over one or more periods

 

$1 today at 12% interest, will be worth $1.12 in a year, and $1.25440 in two years.

Fn = P(1+r)^n

Fn = future value

P = present investment value (one time)

r = interest rate per period

n = number of periods from today

 

 

 

 

Using Tables

 

One common method for solving present value problems is to use financial tables (as found in most common text books,or online). The present value tables give you the "present value factor", which can be used simply to find the present value.

 

All the tables have really done is calculated the exponent for you. For example, a 10 percent interest, for 5 years, will have (1+r)^n = (1.10)^5 = 1.61051 (which you can get by typing in 1.10 x 1.10 five times in your calculator), or you can just look it up in a table, and find 1.61051. So, $1 will be worth $1.61 in 5 years if you earn 10% per year. The 1.61051 is called the Future value factor.

 

 

 

 

 

 

More info:

 

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