Assuming compound interest:
Future_value = present_value × (1 + interest_rate_per_period)^number_of_periods
We have:
present_value = 1
interest_rate_per_period = 2% per year
number_of_periods = 7 years
(The period is annually or yearly or per year.)
→ future value = 1 × (1 + 2%)^7 = (1+2/100)^7 = 1.02^7 ≈ 1.45 (to 2 dp).
The present value of future cash flows is inversely related to the interest rate.
The Present Value Interest Factor PVIF is used to find the present value of future payments, by discounting them at some specific rate. It decreases the amount. It is always less than oneBut, the Future Value Interest Factor FVIF is used to find the future value of present amounts. It increases the present amount. It is always greater than one.
Assuming the interest is compounded annually, the future value is 100*(1.04)10 = 100*1.4802 (approx) = 148.02
Simple interest compounded annually and reinvested will yield 619173.64 before taxes.
Interest rates are also known as discount rates because in order to calculate the present value of a future amount, the future amount must be discounted back to the present
What effect do interest rates have on the calculation of future and present value, how does the length of time affect future and present value, how do these two factors correlate.
The present value of future cash flows is inversely related to the interest rate.
The Present Value Interest Factor PVIF is used to find the present value of future payments, by discounting them at some specific rate. It decreases the amount. It is always less than oneBut, the Future Value Interest Factor FVIF is used to find the future value of present amounts. It increases the present amount. It is always greater than one.
direct
Assuming the interest is compounded annually, the future value is 100*(1.04)10 = 100*1.4802 (approx) = 148.02
Future Value = (Present Value)*(1 + i)^n {i is interest rate per compounding period, and n is the number of compounding periods} Memorize this.So if you want to double, then (Future Value)/(Present Value) = 2, and n = 16.2 = (1 + i)^16 --> 2^(1/16) = 1 + i --> i = 2^(1/16) - 1 = 0.044274 = 4.4274 %
Assuming interest is paid annually, 100000*(1.05)10 = 162889.46
The present value depends on assumptions made about interest or inflation rates for the future.
The present value is what it is worth today minus any surrender charges. The future value is what it will be worth in the future at a given interest rate and again minus any surrender charges if applicable.
decreases towards the future value faster
Simple interest compounded annually and reinvested will yield 619173.64 before taxes.
Compounding finds the future value of a present value using a compound interest rate. Discounting finds the present value of some future value, using a discount rate. They are inverse relationships. This is perhaps best illustrated by demonstrating that a present value of some future sum is the amount which, if compounded using the same interest rate and time period, results in a future value of the very same amount.