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# What is the relationship between present and future value?

777879 ###### 2009-07-23 05:24:52

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.

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## Related Questions PVIF (Present Value Interest Factor) is a table which shows the present value of sum which will be realiseed in the future. PVIFA (Present Value Interest Factor of Annuity) is similar to a PVIF but tailored to one or a group of Annuities. The Present Value (value now) of a fixed cashflow, paid in the future is calculated using the following formula; Present Value = Cashflow/(1+ yield) As the yield rises, the PV falls. The Present Value Interest Factor PVIF is used to find the present value of future payments, by discounting them at some specific rate. It decreases the amount. It is always less than oneBut, the Future Value Interest Factor FVIF is used to find the future value of present amounts. It increases the present amount. It is always greater than one. I need a answer how do you know when to use future value or present value and future value of a annuity and present value of annuity Please help Present Value ------------------- You know what something WILL be worth in the future, and you want to find out what it should sell for today. Future Value ------------------- You know how much something is worth now, and you want to find out what it will be worth in the future. Compounding finds the future value of a present value using a compound interest rate. Discounting finds the present value of some future value, using a discount rate. They are inverse relationships. This is perhaps best illustrated by demonstrating that a present value of some future sum is the amount which, if compounded using the same interest rate and time period, results in a future value of the very same amount. Present Value Calculator Use this calculator to determine the present value of a stream of deposits plus a known final future value. Present value in the value that the money has currently, not the value it will have in the future. Present value does not include the sum of the money from interest that is being accrued. The present value is what it is worth today minus any surrender charges. The future value is what it will be worth in the future at a given interest rate and again minus any surrender charges if applicable. Present value is the result of discounting future amounts to the present. For example, a cash amount of \$10,000 received at the end of 5 years will have a present value of \$6,210 if the future amount is discounted at 10% compounded annually.Net present value is the present value of the cash inflows minus the present value of the cash outflows. For example, let's assume that an investment of \$5,000 today will result in one cash receipt of \$10,000 at the end of 5 years. If the investor requires a 10% annual return compounded annually, the net present value of the investment is \$1,210. This is the result of the present value of the cash inflow \$6,210 (from above) minus the present value of the \$5,000 cash outflow. (Since the \$5,000 cash outflow occurred at the present time, its present value is \$5,000.) A present value calculator is a calculator that is used to figure out the future value of something based on constant payments and interest rates. It helps to calculate the present value as well. You can use the PV function or the NPV function. Present Value is the result of discounting future amounts to the present. Net Present Value is the present value of the cash inflows minus the present value of the cash outflows. According to the dictionary, a present value calculator calculates the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk. The time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one received the payment today, one can then earn interest on the money until that specified future date. All of the standard calculations are based on the most basic formula, the present value of a future sum, "discounted" to the present. For example, a sum of FV to be received in one year is discounted (at the appropriate rate of r) to give a sum of PV at present. Some standard calculations based on the time value of money are: : Present Value (PV) of an amount that will be received in the future. : Present Value of a Annuity (PVA) is the present value of a stream of (equally-sized) future payments, such as a mortgage. : Present Value of a Perpetuity is the value of a regular stream of payments that lasts "forever", or at least indefinitely. : Future Value (FV) of an amount invested (such as in a deposit account) now at a given rate of interest. : Future Value of an Annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest. The time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one received the payment today, one can then earn interest on the money until that specified future date. All of the standard calculations are based on the most basic formula, the present value of a future sum, "discounted" to the present. For example, a sum of FV to be received in one year is discounted (at the appropriate rate of r) to give a sum of PV at present. Some standard calculations based on the time value of money are: : Present Value (PV) of an amount that will be received in the future. : Present Value of a Annuity (PVA) is the present value of a stream of (equally-sized) future payments, such as a mortgage. : Present Value of a Perpetuity is the value of a regular stream of payments that lasts "forever", or at least indefinitely. : Future Value (FV) of an amount invested (such as in a deposit account) now at a given rate of interest. : Future Value of an Annuity (FVA) is the future value of a stream of payments (annuity), assuming the payments are invested at a given rate of interest.

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