## 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

or

FV=PV(1+r)n

where

FV=???

PV=\$1000

r=10%

n=5 years

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.