1 x (1.03)40 = 3.26
Principal amount 5,000 Interest rate 9 percent per year = 0.09 Continuous compounding Number of years 7 Future value = P e^rt Future value = (5000) e^(0.09)(7) Amount after 7 years = $9,388.05
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
The relationship is that present value is the current value of future cash flows discounted at the appropriate discount rate. Future values are the amount a present value investment is worth after one or more periods. We learn everything we can in the present so we have some of the answers for the future and what we don't know we ask the pros about. The difference between the two is contributed by time. The value of something (an asset) may typically increase over a period of time. $100 that you give me today is not the same as $100 you give a year later. There is an interest (or return) that accrues when you pay me $100 a year later. The future value after n years of an amount P where R is the rate of interest (in percentage) is calculated as P(1+R/100)**n : using compound interest. If R =50 (that is 50% rate of return, I know it is high) and n = 2 years, the future value of P is P*1.5*1.5=2.25P where is today's value. The Present value can be calculated from the future value as P = F/( (1+R/100)**n ) It is necessary to measure the value of an amount that is allowed to grow at a given interest over a period. This is how the future value is determined.
What is the future value of $1,200 a year for 40 years at 8 percent interest? Assume annual compounding.
Future value= 25000*(1.08)10 =53973.12
Assuming the interest is compounded annually, the future value is 100*(1.04)10 = 100*1.4802 (approx) = 148.02
The face value is 40000*(1.05)10 = 65156 approx.
With only one year the value is 11600
Assuming interest is paid annually, 100000*(1.05)10 = 162889.46
The future value (FV) of $10,000 at 5% interest for 7 years follows the following formula: 10,000 (1+.05)^7 = 10,000 * 1.41 = $14,100