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Time Value of Money: Discounting Future Value

College-Cram.com:: Finance:: Time Value of Money:: Discounting Future Value
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Description: Discounting the future value is the process of figuring out what that future value is in present-day money. Use this tutorial to learn how to calculate the discounted future value given the future value, periodic interest rate, and number of periods.
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Contents

  1. Discounting Future Value
  2. Future Value and Compounding
Discounting the future value is the process of figuring out what that future value is in present-day money. Use this tutorial to learn how to calculate the discounted future value given the future value, periodic interest rate, and number of periods.

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Future Value and Compounding

Future value is a result of the compounding of interest earned on the present value, or starting amount. As time progresses, the periodic interest is added to the starting amount and the next periodic interest amount is calculated based on that.

As such, the amount of interest earned over the entire time period can be found by subtracting the present value from the future value:

Amount of Interest = FV - PV 

Click this link to learn more about compound interest and other Time Value of Money concepts.

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