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.
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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
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