What is future value?
The future value (FV) is the value of an asset or cash at a specific date in the future, taking into account the amount of interest that is expected to be earned. It is used to calculate the potential value of an investment, such as a savings account or a stock, at a future date based on its current value and the expected interest rate.
How future value is calculated?
The future value is calculated by multiplying the present value by the compound interest factor, which considers the number of compounding periods and the interest rate.
Future Value vs Present Value
Present value is the concept of recognizing the true worth of something, considering rates like inflation, cost of goods, and other variables that can affect its overall worth in the future. Future value allows us to determine how much our investment or savings will be worth in the future based on factors such as interest rate, inflation rate, and time since the money was invested or saved.
Evaluating present value provides insight into what we should expect from an investment in terms of a return on our capital while assessing future value helps us evaluate potential monetary returns if we save or invest today.