As its name indicates, the Future Value (FV) refers to the future value of a certain amount of money or security that we currently hold or that we have decided to invest in.
This means that the Future Value allows us to calculate what value the money when I spend a certain time considering the different alternatives of inversión what we have. The current value and interest rate that can be applied, on average, to the future time will be key to calculating said value.
The main objective of Future Value is that it can be used as a tool that allows us to evaluate the different alternatives we have and the things to do with money. The relationship between the present value and future will be determined by the value they take over different moments of time. A basic advice of finances is that we do not wait to have the future money, but we take the current money, unless for that reason they pay us interest that is worth it.
Future value formulas
The formulas are determined by the two interest rates that we can find. So we have two interest rates and two formulas:
Future value formula for simple interest
The interest rate is applied only on the initial capital, and not on the interests that are generated over time. Its formula:
VF = VA x (1 + rxn)
FV = future value
VA = current value we invest
r = tasa of simple interests
n = number of periods
Future value formula for a future interest
The interest rate is applied on the initial capital and on the interests that are earned each period. The formula is as follows:
VF = VP x (1 + r)n
Future Value Calculator