Future Value of a Lump SumThe Future Value is defined as the value of a given sum of money today at a specific future date taking into account compound interests. If your $1000 earns $50 of interest in one year and the $50 earned is used to earn further interest in the subsequent year, this is compound interest.
Formula of Future Value
FVn = PV * (1+r)^n
- FVn is the Future Value after a specific period
- PV is Present Value
- r is the interest rate
- n is the period. For example 5 years.
Some of you may be familiar with the FV (Future Value) formula provided by Excel. We will however not be using it at this moment as we will be building the models from the very basic calculations instead. Once we are familiar with the basics, we can move on to further evolve the models to use the formulas provided by Excel.
Future Value of a Lump Sum with more than 1 compounding period per year
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