Future value: Difference between revisions
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'''Example''' | |||
$100m is held today. | |||
The rate of return on capital (r) is 10% per year. | |||
The Future value is: | |||
= $100m x 1.1<sup>1</sup> | |||
= $110m | |||
'''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 | r = return on capital or cost of capital per period | ||
n = number of periods | n = number of periods | ||
Revision as of 14:52, 16 March 2015
(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.
Example
$100m is held today.
The rate of return on capital (r) is 10% per year.
The Future value is:
= $100m x 1.11
= $110m
More generally
FV = Present value x Compounding Factor (CF)
Where:
CF = ( 1 + r )n
r = return on capital or cost of capital per period
n = number of periods
