Future Value (FV)

(noun)

The value of the money in the future.

Related Terms

Examples of Future Value (FV) in the following topics:

  • The Relationship Between Present and Future Value

    • Present value (PV) and future value (FV) measure how much the value of money has changed over time.
    • The future value (FV) measures the nominal future sum of money that a given sum of money is "worth" at a specified time in the future assuming a certain interest rate, or more generally, rate of return.
    • The FV is calculated by multiplying the present value by the accumulation function.
    • The value does not include corrections for inflation or other factors that affect the true value of money in the future.
    • If there are multiple payments, the PV is the sum of the present values of each payment and the FV is the sum of the future values of each payment.

  • Future Value, Multiple Flows

    • Finding the future value (FV) of multiple cash flows means that there are more than one payment/investment, and a business wants to find the total FV at a certain point in time.
    • These payments can have varying sizes, occur at varying times, and earn varying interest rates, but they all have a certain value at a specific time in the future.
    • The first step in finding the FV of multiple cash flows is to define when the future is.
    • Then, simply add all of the future values together.
    • The FV of multiple cash flows is the sum of the future values of each cash flow.

  • Single-Period Investment

    • What is the value of a single-period, $100 investment at a 5% interest rate?
    • FV=100(1.05) FV=$105.
    • The amount of time between the present and future is called the number of periods.
    • As you know, if you know three of the following four values, you can solve for the fourth:
    • You want to know the value of your investment in the future, so you're solving for FV.

  • Single-Period Investment

    • The time value of money framework says that money in the future is not worth as much as money in the present.
    • The value of the money today is called the present value (PV), and the value of the money in the future is called the future value (FV).
    • In order to find the PV, you must know the FV, i, and n.
    • That means that the PV is simply FV divided by 1+i.
    • Therefore, the PV is i% less than the FV.

  • Future Value of Annuity

    • The future value of an annuity is the sum of the future values of all of the payments in the annuity.
    • The future value of an annuity is the sum of the future values of all of the payments in the annuity.
    • There are different FV calculations for annuities due and ordinary annuities because of when the first and last payments occur.
    • There are some formulas to make calculating the FV of an annuity easier.
    • Provided you know m, r, n, and t, therefore, you can find the future value (FV) of an annuity.

  • Calculating Future Value

    • The Future Value can be calculated by knowing the present value, interest rate, and number of periods, and plugging them into an equation.
    • When calculating a future value (FV), you are calculating how much a given amount of money today will be worth some time in the future.
    • In order to calculate the FV, the other three variables (present value, interest rate, and number of periods) must be known.
    • Suppose we want to again find the future value of a $500, 10-year loan, but with an interest rate of 1% per month.
    • Distinguish between calculating future value with simple interest and with compound interest

  • Calculating Annuities

    • So far, we have addressed ways to find the PV and FV of three different types of annuities:
    • Perpetuities don't have a FV because they don't have an end date.
    • The FV of an annuity with payments at the beginning of each period:
    • The FV of an annuity with the payments at the end of each period:
    • As for the FV equations, the FV of an annuity-due is the same as the FV of an ordinary annuity plus one period and minus one payment.

  • Calculating Values for Different Durations of Compounding Periods

    • If you wanted to find the FV of a sum of money, you would have to use 8.24% not 8%.
    • Solving for the EAR and then using that number as the effective interest rate in present and future value (PV/FV) calculations is demonstrated here.
    • In this equation, A(t) corresponds to FV, A0 corresponds to Present Value, r is the nominal interest rate, n is the number of compounding periods per year, and t is the number of years.
    • This formula allows you to figure out how many periods are needed to achieve a certain future value, given a present value and an interest rate.
    • Calculate the present and future value of something that has different compounding periods

  • Multi-Period Investment

    • That means that the value of $100 will be 3% more after one year, or $103.
    • As such, PV and FV are related exponentially, which is reflected in.
    • Just as with a single-period investment, you simply plug in the FV, i and n in order to find the PV.
    • PV varies jointly with FV and inversely with i and n, which makes sense based on what we know about the time value of money.
    • Press the "compute" (or "solve") key and then the "FV" key to solve for future value.

  • Annuities and Mortgages

    • Financial analysts use the present value formula to calculate an annuity.
    • Calculate the value of your annuity in five years if you pay $20,000 into the annuity.
    • Using the previous example, the value of the annuity still equals $119,694.21.
    • We use the present value formula to build an amortization table.
    • All future mortgage payments (FV) are equal and are usually monthly.