1. Analytical Methods for Lawyers (Finance) Future value [last updated 6 Apr 09]

2. “The most powerful force in the universe is compound interest”.

3. Value of $1000?

4. I offer you either $500 today or $800 in three years. Which is better?

5. Time value of money Invest $50010%Balance Year 1 Year 2 Year 3 $50.00 $55.00 $60.50 $550.00 $605.00 $665.50

6. Time value of money Invest $50010%Balance Year 1 Year 2 Year 3 $50.00 $55.00 $60.50 $550.00 $605.00 $665.50 $800 in 3 years > $500 today (assuming a 10% rate for money)

7. Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $100.00 $120.00 $144.00 $600.00 $720.00 $864.00

8. Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $100.00 $120.00 $144.00 $600.00 $720.00 $864.00 $500 today > $800 in 3 years (assuming a 20% rate for money)

9. Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $100.00 $120.00 $144.00 $600.00 $720.00 $864.00 $500 * (1+.20) 3 = $864

10. Future value FV = PV * (1+ i) n 01 2 3 4 5 6 7 PV FV

11. Which is better investment?

12. Example How much would a 5-year zero coupon bond face amount $10,000 at 2.5% interest (compounded annually) pay at maturity? Solution

13. What is FV of dollar cost averaging? (an annuity - $5,000 for 10 years @ 7%) Law & Valuation 1.2.3 “Future value of annuity”

14. The end