Future Value of an Investment - Time Value of Money -

Time Value of Money or TVM Is the value of a sum of money over time after gaining some interest that is paid on a principal investment. The first TVM formula we are going to analyzed is called future value.

Future Value Is the value of an investment after a certain time in the future that represents a specific amount today. In other words, it is how much an investment today will be worth in the future.

Write A future value formula using the following table: X Y 500 1 532.5 2 567.11 3 603.97 4 643.23

This is the equation

We will generate a future value formula FV = future value of the investment (y) PV = present value of the investment (a) r = interest rate t = time in years (x)

What if it is Compounded more that once a year? Mrs. Fierro wants to know what would be the balance in her account if she makes a deposit of $5000 and the account pays an interest rate of 5% compounded monthly after 5 years. First, set up a formula: FV = 5000(1 + 0.05/12)^5x12 FV = 5000 (1.0041666666667)^60 FV = 6416.79

summary In this lesson we were able to find the future value of an investment using exponential equations. We learned that the value of money will change through time due to different factors like interest rates, time, and compound periods. We generated a Future value formula based on exponential equations, and then we modified the formula in a way that it would be able to calculate the future value with different compounding periods.

summary We also learned that compounded periods are the periods or the times that the interest will be calculated during a year. The formula we will be using for Future Value is the following:

assignment Section 6.3 in flexbook Page 176 Practice: 1-12

vocabulary Time Value of Money or TVM: is the value of a sum of money over time after gaining some interest that is paid on a principal investment. Future Value: Is the value of an investment after a certain time in the future that represents a specific amount today. In other words, is how much an investment today will be worth in the future. Principal: initial investment or loan. Compound period: is how many times in a year interest will be generated