MBATricks

Tips and Tricks about my MBA experience

Finance :: Future Value – Single Sums

 

The Future Value for Single Sums allows to calculate the amount of money on the year n based on its Present Value (at year 0) and the interests rate. Note that Single Sums means that each yearly sum is independent from one year to the other (different from annuities).

 

(FVn)ss = (PV0)ss * (CVIF)ss

 

where:

 

  • (FVn)ss – Future Value at year n (Single Sums)
  • (PV0)ss – Present Value at year 0 (Single Sums)
  • (CVIF)ss – Compound Value Interest Factor (Single Sums) = (1+i)^t
  • i = interest rate
  • t = time in year

 

For example:

If we know that we have a Present Value of 1000 USD and that we have an interest rate of 6% and we invest it for 3 years this will give us:

(FV)0 = 1000 * ((1+6%)^3) = 1191.02

It means that if we invest 1000 USD at a rate of 6% for we will have 1191.02 USD after 3 years.

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