Future value: Difference between revisions
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imported>Doug Williamson m (Spacing 27/8/13) |
imported>Doug Williamson m (Expand for clarity.) |
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(FV). | (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. | If we invest money today (and roll up all the expected income) the future value receivable is the expected total value of our investment at its maturity. | ||
If we ''borrow'' money today (and roll up all the interest payable) the future value payable is the total principal and interest repayable to the lender at the final maturity of the borrowing. | |||
Revision as of 13:49, 6 August 2014
(FV).
If we invest money today (and roll up all the expected income) the future value receivable is the expected total value of our investment at its maturity.
If we borrow money today (and roll up all the interest payable) the future value payable 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
