The future value of a single amount (one time cash flow) at some future time evaluated at a given interest rate assuming that compounding take place one time in a year (annually). Two methods for calculation:

future value of a single amount



Formula Future Value of a Single Amount

Formula Sheet Download

future value formula

FVn = Future value of n years

PV = Present value

i = Interest rate or Compound rate

n = Number of years

FVIF = Future Value Interest Factor

 

Example # 1: 

Ms Nosheen puts Rs. 10,000 in a savings account today, that pays 5% compounded annually. How much will she have in her account after ten years; by above mentioned three equations?

 

Solution: 

future value example

future value annual compounding



Future Value of Single Amount Table Download

future value from table

 

Example # 2: 

Find the value of Rs. 10,000 today at the end of 10 periods at 5% per period by using scientific calculator and by Excel sheet?

 

Solution: 

future value calculator

future value spread sheet

 

>> Practice Future Value of a Single Amount MCQs  

 

Future value of a single amount (Intra-year Compounding)

The value of a single amount at some future time evaluated at a given interest rate assuming that compounding take place more than one time in a year (Intra-year). Interest rate reduced while periods of time increase by frequency of compounding (m) i.e. i/m and n*m. Two methods for calculation:

future value intra year compunding

 

Formula 

Time Value of Money Formula Sheet Download

future value formula intra year

FVn = Future value of n years

PV = Present value

i = Interest rate or Compound rate

m = Frequency of compounding

n = Number of years

FVIF = Future Value Interest Factor

 

>>> Practice Future Value of a Single Amount MCQs  

 

Example # 3: 

Mr. Naveed purchase a 3-year, 6-percent savings certificate for Rs. 25,000.  If interest is compounded semi-an­nually, what will be the value of the certificate when it matures by above mentioned two equations?

 

Solution: 

future value intra year compounding

 

Future Value of Single Amount Table Download

future value intra year compounding example

 

>> Practice Future Value of a Single Amount Quiz 1 and Quiz 2.

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References

Financial Management: Theory and Practice, Dr Eugene F Brigham & C Micheal Ehrhardt

Fundamentals of Financial Management: Concise Edition, Brigham Houston

The Economist Guide to Financial Management, John Tennet

Financial Management: Core Concepts, Raymond M Brooks

2 Comments

  1. Imamu

    Thank you so much

    Reply
  2. Eleanor

    Good piece of information related to FV.

    Reply

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