Future value is defined as the amount an investment is worth after one or more periods
#6 Re: Compounding and Period [LO1, 2] ( Student Response)
Future value is defined as the amount an investment is worth after one or more periods. There are many factors to consider when evaluating the impact of time and future values, such as simple interest calculation and the use of compounding. Simple interest is the amount gained on the original principal and compounding is the accumulation of interest on an investment over time to earn more interest. Future values will increase as represented in the future value interest factor; (1+r)?, 1 dollar invested + r percent for t periods which will give you the future value factor.
Present value is defined as the current value of future cash flows discounted at the appropriate discount rate, and discount refers to, calculating the present value of some future amount. Calculating the present value of a future cash flow to determine its value today is known as discounted cash flow valuation and is illustrated in the following equation, 1/(1+r)?, one divided by one dollar plus percentage multiplied by t periods equal discount rate, then multiply the discount rate by the value needed in years to obtain the present value number. As the length of time until the payment grows, the present value will decline. Another consideration is that for a given length of time the higher the discount rate, the lower the present value will be
#7 Re: Compounding and Period [LO1, 2] ( Professor Following response to #6)
Hi Ken,
These are very detailed notes. Are these your original ideas or is this a cut and paste from some other source? Remember if it’s not your original idea, then you need to acknowledge your source with an APA compliant citation and reference.
So, theory aside, how might you apply these concepts in real life? For example, I would use the future value calculation to estimate the future value of my 401k savings to date. I might use the present value calculation to estimate the value of retirement needs into today’s dollars so as to better estimate what I need to save. What are some ways you might apply these concepts?
#8 five inputs to a TVM problem (Student Post)
The five inputs tol TVM problems are present value, future value, discount, return or interest rate, number of periods and the cash amount.
Present value is what it is worth now. Generally the amount needed to invest. Future value how much it is worth in the future. The rate is the percent amount that can be earned. Number of periods, usually years, is how long it will earn interest. Cash amount is the amount of interest earned.
Not every problem will require the use of all inputs. It really all depends on what we are trying to figure out.
https://phoenix.vitalsource.com/books/1259798224/epubcfi/6/34[;vnd.vst.idref=body017]!/4/2/2[page_124]@0:0.00
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Future value (FV) represents the worth of any investment after a certain period of time has passed. Factors looked into during the determination of the effect of time length and future amounts include the determination of simple interest and the utilization of compounding. FV increases according to its representation in the FV interest rate…………………………
APA
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