Future value: Difference between revisions
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imported>Administrator (CSV import) |
imported>Doug Williamson m (Spacing 27/8/13) |
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(FV). If we invest money today (and roll up all the expected income) the future value is the expected total value of our investment at its maturity. | (FV). | ||
If we invest money today (and roll up all the expected income) the future value is the expected total value of our investment at its maturity. | |||
Or if we borrow money today (and roll up all the interest payable) the future value is the total principal and interest repayable to the lender at the final maturity of the borrowing. | Or if we borrow money today (and roll up all the interest payable) the future value is the total principal and interest repayable to the lender at the final maturity of the borrowing. | ||
For example if $100m is held today, and the rate of return on capital (r) is 10% per year, the Future value is: | For example if $100m is held today, and the rate of return on capital (r) is 10% per year, the Future value is: | ||
FV = $100m x 1.1<sup>1</sup> = $110m | FV = $100m x 1.1<sup>1</sup> = $110m | ||
And more generally: | And more generally: | ||
FV = Present value x Compounding Factor (CF) | FV = Present value x Compounding Factor (CF) | ||
Where: | Where: | ||
CF = (1+r)<sup>n</sup> | CF = (1+r)<sup>n</sup> | ||
r = return on capital or cost of capital per period; and | r = return on capital or cost of capital per period; and | ||
n = number of periods | n = number of periods | ||
== See also == | == See also == | ||
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* [[Terminal value]] | * [[Terminal value]] | ||
* [[Time value of money]] | * [[Time value of money]] | ||
Revision as of 13:13, 27 August 2013
(FV).
If we invest money today (and roll up all the expected income) the future value is the expected total value of our investment at its maturity.
Or if we borrow money today (and roll up all the interest payable) the future value is the total principal and interest repayable to the lender at the final maturity of the borrowing.
For example if $100m is held today, and the rate of return on capital (r) is 10% per year, the Future value is:
FV = $100m x 1.11 = $110m
And more generally:
FV = Present value x Compounding Factor (CF)
Where:
CF = (1+r)n
r = return on capital or cost of capital per period; and
n = number of periods
