Future Value of a Single Amount Calculation Examples Help

Future Value of a Single Amount Calculation Examples, Concepts, Illustrations, Sample Help Online

 

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Understanding the concept of Future Value of a Single Amount Calculation Examples

 

When a sum of money is invested on a given date at the given rate of interest then the future value of that sum of money will increase. This is because future value is the present value plus compound interest.
 

We can calculate the future value of a single sum of money by using the following formula
Future Value (FV) = Present Value (PV) × (1 + i)n
Where,
i is the interest rate per compounding period; and
n is the number of compounding periods.
 

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Future Value of a Single Amount Calculation Examples Explanation

 

Let’s understand the concept with the help of an example.
 

Example 1: An amount of $10,000 was invested on Jan 1, 2011 at annual interest rate of 8%. Calculate the value of the investment on Dec 31, 2013. Compounding is done on quarterly basis.
 

Solution:We have,
Present Value PV = $10,000
Compounding Periods n = 3 × 4 = 12
Interest Rate i= 8%/4 = 2%
Future Value FV = $10,000 × (1 + 2%)^12
= $10,000 × 1.02^12
≈ $10,000 × 1.268242
≈ $12,682.42
 

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