Question

how to understand future value and present value understand the concept and formulas

Answer 1

Present Value:

Present value is current value of Future cash flows discounted at specified discount Rate.

PV = FV / (1+r)^n
Where r is Int rate per period
n - No. of periods

Future Value:

Future Value is Value of current asset at future date grown at given int rate or growth rate.

FV = PV (1+r)^n
Where r is Int rate per period
n - No. of periods

Ex:

$ 1000 to be received after 1 year. If it earns 10% Int per anum, What is present Value?

Particulars	Amount
Future Value	$              1,000.00
Int Rate	10.0000%
Periods	1

Present Value = Future Value / ( 1 + r )^n
= $ 1000 / ( 1 + 0.1 ) ^ 1
= $ 1000 / ( 1.1 ) ^ 1
= $ 1000 / 1.1
= $ 909.09

Present Value today is $ 909.09

Ex for future Value:

Value of $ 1000 after 1 Year if int rate is 10% per anum.

Particulars	Amount
Present Value	$             1,000.00
Int Rate	10.0000%
Periods	1

Future Value = Present Value * ( 1 + r )^n
= $ 1000 ( 1 + 0.1) ^ 1
= $ 1000 ( 1.1 ^ 1)
= $ 1000 * 1.1
= $ 1100