Difference between revisions of "Future value"

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(Related concepts)
(Related concepts)
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==Related concepts==
 
==Related concepts==
 
*[[PV]]. [[Present value]], or beginning amount. For example, US$100 initially invested in a [[bond]].
 
*[[PV]]. [[Present value]], or beginning amount. For example, US$100 initially invested in a [[bond]].
*[[FV|FV<small>N</small>]]. ''Future value'', or ending amount, of your account after N periods. Whereas PV is the value now, or the present value, FVN is the value N periods into the future, after the interest earned has been added to the account. CFt 5  Cash flow. Cash flows can be positive or negative. The cash flow for a particular period is often given as a subscript, CFt, where t is the period. Thus, CF0 5 PV 5 the cash flow at Time 0, whereas CF3 is the cash flow at the end of Period 3. I 5  Interest rate earned per year. Sometimes a lowercase i is used. Interest earned is based on the balance at the beginning of each year, and we assume that it is paid at the end of the year. Here I 5 5%  
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*[[FV|FV<small>n</small>]]. ''Future value'', or ending amount, of the account after N periods. Whereas [[PV]] is the value now, or the present value, [[FV|FV<small>N<small>]] is the value N periods into the future, after the interest earned has been added to the account.
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CFt 5  Cash flow. Cash flows can be positive or negative. The cash flow for a particular period is often given as a subscript, CFt, where t is the period. Thus, CF0 5 PV 5 the cash flow at Time 0, whereas CF3 is the cash flow at the end of Period 3. I 5  Interest rate earned per year. Sometimes a lowercase i is used. Interest earned is based on the balance at the beginning of each year, and we assume that it is paid at the end of the year. Here I 5 5%  
 
  or, expressed as a decimal, 0.05. Throughout this chapter, we designate the interest rate as I because that symbol (or I/YR, for interest rate per year) is used on most financial calculators. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. Note too that in this chapter we generally assume that interest payments are guaranteed by the U.S. government; hence, they are certain. In later chapters, we consider risky investments, where the interest rate earned might differ from its expected level. INT 5  Dollars of interest earned during the year 5 Beginning amount 3 I. In our example, INT 5 $100(0.05) 5 $5. N 5  Number of periods involved in the analysis. In our example, N 5 3. Sometimes the number of periods is designated with a lowercase n, so both N and n indicate the number of periods involved.
 
  or, expressed as a decimal, 0.05. Throughout this chapter, we designate the interest rate as I because that symbol (or I/YR, for interest rate per year) is used on most financial calculators. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. Note too that in this chapter we generally assume that interest payments are guaranteed by the U.S. government; hence, they are certain. In later chapters, we consider risky investments, where the interest rate earned might differ from its expected level. INT 5  Dollars of interest earned during the year 5 Beginning amount 3 I. In our example, INT 5 $100(0.05) 5 $5. N 5  Number of periods involved in the analysis. In our example, N 5 3. Sometimes the number of periods is designated with a lowercase n, so both N and n indicate the number of periods involved.
  

Revision as of 11:19, 3 December 2019

Future value (also known by its acronym, FV, as well as FVN) is the future value of an initial single cash flow, where N is the number of periods the initial cash flow is compounded.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Future value (FV, FVN). The future value of an initial single cash flow, where N is the number of periods the initial cash flow is compounded.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Future value. The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.

Related concepts

  • PV. Present value, or beginning amount. For example, US$100 initially invested in a bond.
  • FVn. Future value, or ending amount, of the account after N periods. Whereas PV is the value now, or the present value, FVN is the value N periods into the future, after the interest earned has been added to the account.
CFt 5  Cash flow. Cash flows can be positive or negative. The cash flow for a particular period is often given as a subscript, CFt, where t is the period. Thus, CF0 5 PV 5 the cash flow at Time 0, whereas CF3 is the cash flow at the end of Period 3. I 5  Interest rate earned per year. Sometimes a lowercase i is used. Interest earned is based on the balance at the beginning of each year, and we assume that it is paid at the end of the year. Here I 5 5% 
or, expressed as a decimal, 0.05. Throughout this chapter, we designate the interest rate as I because that symbol (or I/YR, for interest rate per year) is used on most financial calculators. Note, though, that in later chapters, we use the symbol r to denote rates because r (for rate of return) is used more often in the finance literature. Note too that in this chapter we generally assume that interest payments are guaranteed by the U.S. government; hence, they are certain. In later chapters, we consider risky investments, where the interest rate earned might differ from its expected level. INT 5  Dollars of interest earned during the year 5 Beginning amount 3 I. In our example, INT 5 $100(0.05) 5 $5. N 5  Number of periods involved in the analysis. In our example, N 5 3. Sometimes the number of periods is designated with a lowercase n, so both N and n indicate the number of periods involved.

Related concepts

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