Future value
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, which is the beginning amount, like US$100 initially invested in a bond. PV is equal to both FV0 (future value) and CF0 (cash flow) at the end of Period 0.
- 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. Cash flow, which can be either positive or negative. The cash flow for a particular period is often given as a subscript, CFt, where t is the period. Thus, CF0 = PV = the cash flow at Period 0, whereas CF3 is the cash flow at the end of Period 3.
- I/YR. I, i, interest rate per year, interest rate earned per year, or, sometimes, r for rate of return. This interest is based on the balance at the beginning of each year, and, if the principal amount is unchanged, the interest is commonly calculated at the end of the year. The interest can be expressed as a percentage, like 5%, or as a decimal, like 0.05.
- INT. Dollars of interest earned during the year = Beginning amount multiplied by I/YR. For instance, if the initially invested amount is US$100 and the I/YR is 10%, INT will be 10.
- N. Number of periods involved in the analysis. Sometimes the number of periods is designated with a lowercase n, so both N and n indicate the number of periods involved.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
