Future Value of Money
The Future Value is the value of money at a point in time. Lets explain this using an example. Say we have $1000 which has been given to us today. We want to put this $1000 in in a bank accumulating 10% interest for the next 5 years. The question we need to answer is what is the Future Value of our $1000 at the end of 5 years.
Given $1000 today
Invest in Bank for 5 years at 10%
Value at end ?????
So this pictorial example is the question we want answered. The formula to calculate a result is as follows;
Future Value (FV)=Present Value (PV) X (1 + r)^n
So we can create the formula for the above;
FV=1000 X (1.10)^5
or as we would set the equation out in an Excel spreadsheet.
You can see from the above that our $1000 has grown into $1,611 after 5 years in a bank. In my studies I found the FV formula the easiest to apply and it had so many practical implications in everyday life. The following file covers the above simple example.