Math help needed: Future value vs Present value

timer Asked: Nov 8th, 2015
account_balance_wallet $5

Question Description

Future value vs Present value

What is the difference between the accumulated amount (future value) and the present value of an investment?  Give examples of each.

* This is just a discussion question. Response does not need to be long but at least 75 to 150 words.

Tutor Answer

School: Cornell University

Thank you for the opportunity to help you with your question!

Future value is defined as amount of future value of money shows the benefit of investing and earning interest. The formula for calculating the future value is (1+r)^n.

Present value of investment is defined as value of money at present date/today. The formula for calculating the present value of an investment is 1/(1+r)^n

suppose you invest $1000 at the end of each year for 10 years @ 10% interest 

FV = PMT((1+r)^n-1)/r 

so FV = 1000(1.1^10-1)/0.1 = $15,937.42 <---------- 

to get the PV, PV = FV /(1+r)^n = 15,937.42 /1.1^10 = $6144.57 <---------- 

the direct formula for PV is 
PV = PMT(1 - (1+i)^-n )/r = 1000(1 - 1.1^-10)/0.1 = $6144.57, as before, 

but the basic funda is FV = PV(1+r)^n or PV = FV/(1+r)^n

Please let me know if you need any clarification. I'm always happy to answer your questions.

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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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