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Future Value of Investment

Future value of investment means the value of investment after passing the given period. For example, we are interested to know the amount after 5 years if we invest $ 100 per month for 5 years at the rate of 8.5% per year. So, Value of your investment after 5 years will be future value of investment. Like this, there are lots of investors who invest their money in different way and want to interested total value after the time of investment. Following formulas are very useful for calculating calculating future value of investment.


1st : When Investor earns Simple interest on his investment

Future value = initial investment X ( 1+ rate of interest X number of years )

For example :

http://www.svtuition.org/2010/02/interest.html$1000 invested for 5 years with simple annual interest of 10% would have a future value of $1,500.00.

= 1000 X ( 1+ 10/ 100 X 5 ) = 1000 X (100 +50)/ 100 = 1000 X 1.5 = $ 1500

2nd : When Investor earns compound interest on his investment

Future Value = Initial Investment X ( 1 + rate of interest ) power number of years

For example :

$1000 invested for 5 years at 10%, compounded annually has a future value of $1,610.51

= 1000 X ( 1+ 10/100 ) ^ 5 = 1000 X (110/100)^5 = 1000 X (1.10)^ 5 = $ 1610.51

We will calculate 1.10 ^ 5 with the use of log.

3rd : When investor deposits his investment in the form of installments and gets his full amount with compound interest

Future Value = Installment X { ( 1 + rate of interest) Power number of years - 1 / rate of interest }

For example :

A man deposits in a bank $ 20000 at the end of each year for 5 years. If compound interest at 10% p.a. is reckoned. What would be the future value standing to his credit at the end.

Future Value = 20000 { ( 1+10/100)^5 - 1 /10/100 }= $ 122,200

COMMENTS

: 1
  1. you have explained this topic in very simply way also explained if the payment is deposited in the beginning of the year. please also explained actuarial valuation of gratuity in the light of IAS/IFRS

    THANK YOU


    RIAZ

    ReplyDelete
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Accounting Education: Future Value of Investment
Future Value of Investment
Accounting Education
https://www.svtuition.org/2012/06/future-value-of-investment.html
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