## What is Future value ?

## Definition of Future value

Future value is defined as the value of an asset at a given future date. It measures the worth of money at any future given date.

The need to measure the future value of current money happened because of the inflation.

### Brief Explanation of Future value

There are two ways for it can be calculated

**Simple interest rate and compound interest rate.**

Simple interest formula applies when interest is expected to receive only on initial investment.

Formula for simple future value is as follows

FV= PV * (1 (r*t))

Where r is the interest rate

And t is the number of years or time period involved.

Compound interest means interest is applied annually on investment.

Formula to calculate it as compound interest rate is as follows;

Future value = Present value * (1+ r) ^t

Where r is the interest rate

And t is the number of years or time period involved.

**Example of Simple Future Value Interest:**

Suppose Mr. A invests $ 1000 for5 years. Now how to calculate it’s present value when the interest rate is 10 % is mentioned below;

N = 5

R = 10 %

Putting in formula

FV = $ 1000* (1+(10% *5))

FV = $ 1000 * (1.5)

FV = 1500

**Example of Simple Future Value Compound Interest:**

Using the same above data on compound rate formula the results are as follows

FV = $ 1,000 *((1 + r) ^ t)

FV = $ 1,000* (1.1) ^ 5

FV = $ 1,611

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