Question

What is the difference between future value and present value? What data do you need to do a future value or present value calculation?

Answer 1

Future value: Today Dollar value in future at a certain point of time.

Present value: Future dollar value of today’s dollar expected to be received in future at a certain point of time.

Future value = P×(1+r)^n

P is present value

r is interest rate per period

n is number of periods

P, r and n are required for calculating future value.

Present value = P×(1÷(1+r)^n)

P is Future value

r is interest rate per period

n is number of periods

P, r and n are required for calculating future value.