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Future value

Future value Definition

Future value measures what money is worth at a specified time in the future. This is used in time value of money calculations.

To determine future value (FV) without compounding:

 FV = PV * (1 + rt)

To determine future value when interest is compounded:

 FV = PV * (1 + r)t

where PV is present value, t is the number of time periods, and r stands for the discount rate per time period.

For example, What is the future value of 1 money unit in one year, given 10% interest? The number of time periods is 1, the discount rate is 0.10, the present value is 1 unit, and the answer is 1.10 units. Note that this does not mean that the holder of 1.00 unit will automatically have 1.10 units in one year, it means that having 1.00 unit now is the equivalent on having 1.10 units in one year.








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