Consider a scenario in which you could personally use present or future value calculations to come to a conclusion. Explain the scenario and provide calculations that show how you applied the time value of money concepts.
| Present Value (PV) is the Current worth of future cash Flow,while Future value(FV) is the worth of investment in the future. | |||||||||
| Time value of money is used to find the discount factor of both present and future value. | |||||||||
| Formula: | |||||||||
| FV=PV*(1+i)^n | |||||||||
| PV=FV/(1+i)^n | |||||||||
| How the value of $10000 in 10 Years.The investment earns 5% per year. | |||||||||
| FV=$10000*(1.05)^10 | |||||||||
| FV=$10000*1.628895 | |||||||||
| FV= | $ 16,289 | ||||||||
| How much I need to invest at 5% per year,in order to have $16289 in 10 years. | |||||||||
| PV=$16289/(1.05)^10 | |||||||||
| PV=16289/1.62889 | |||||||||
| PV= | $ 10,000 |
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