Future Value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The FV calculation allows investors to predict, with varying degrees of accuracy, the amount of profit that can be generated by different investments. FV calculation is based on the assumption of a stable growth rate.
The future value (FV) is important to investors and financial planners as they use it to estimate how much an investment made today will be worth in the future. Knowing the future value enables investors to make sound investment decisions based on their anticipated needs
The FV calculation can be done in two ways depending on the type of interest being earned.
Simple Interest -
If an investment earns simple interest, then the Future Value (FV) formula is -
Compound Interest -
The formula for the Future Value (FV) of an investment earning compounding interest is -