CALCULATION OF
PRESENT VALUE AND
FUTURE VALUES
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FUTURE VALUE AND
PRESENT VALUE
In finance, understanding how money grows or loses
value over time is very important. Two of the most
basic but essential concepts are Future Value (FV) and
Present Value (PV). These concepts help individuals
and businesses make smart financial decisions,
especially when saving, investing, or taking loans.
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• 1. Investing: Helps you know how
much your money will grow.
TIME VALUE •
OF MONEY • 2. Saving for the Future: You can
calculate how much you need to save
now.
• 3. Loans: Banks use PV to calculate
the current value of future loan
payments.
•
• 4. Business Decisions: Companies
use FV and PV to decide if an
investment is worth it.
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WHAT IS FUTURE VALUE (FV)?
Future Value is the amount of money Formula for Future Value:
that an investment today will grow into at
FV = PV (1 + r)^n
a future date, based on a certain interest
rate. Where:
FV = Future Value
PV = Present Value (amount you invest today)
r = annual interest rate (decimal form)
n = number of years
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EXAMPLE:
You invest ₱10,000 at 5% annual interest for 3 years:
FV = 10,000 (1 + 0.05)^3 = 10,000* 1.1576 = ₱11,576
So, your money will grow to ₱11,576 after 3 years.
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WHAT IS Present Value is the current value of a future
PRESENT amount of money, discounted back using an
interest rate. It answers the question: “How
VALUE (PV)? much is that future money worth today?”
Formula for Present Value:
PV = {FV} ÷ {(1 + r)^n}
Where:
PV = Present Value
FV = Future Value (amount expected in the future)
r = interest rate
n = number of years
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EXAMPLE
You want ₱20,000 after 5 years, and the interest rate is 6%:
PV = {20,000÷(1 + 0.06)^5} = (20,000)(0.7472581283) = ₱14,945.16
You need to invest ₱14,945.16 today to have ₱20,000 after 5 years.
THANK
YOU
Reporters
Abdulhamid, Morsed S.
Bato, Abdulhakem D.
Cabugatan, Hassan-nur
Mohammad, Jufally
• Problem:
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•
• 1.) Jane Farber places P800 in a savings account paying 6% interest
compounded annually. She wants to know how much money will be in
the account at the end of 5 years.
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