Future value and present value

 In this lesson we're going to learn future value and present value. Future value is value later and present value is the current value.

  To find the future value, you have to multiply the current value by (1 + r)^n. Therefore the formula is current value x (1 + r)^n. If we look at the formula, the formula looks same as the compound interest formula. The reason is the formula for compound interest formula is same as the formula we just learned, and FV = PV(1 + R)^n is the generalized form for the compound interest formula.

                           FV = PV(1 + R)^n

FV = Future value
PV = Present value
R = Rate
n = Number of years.

  For example is "A person invests $500 at 8% paid half yearly. what's the future value after 7 years?"
  Now we know the present value is $500 and only the concern is paid half yearly.
This is what we do. 8% is the annual rate so we divide into half.

  500 x (1 + 0.04)⁷

= 500 x (1.04)⁷
= $657.96
Therefore the answer is $657.96.