How to Calculate the Future Value of an Investment?
When we decided to save, the next step is to learn to invest our money. Knowing how they behave different investment instruments over time will support us to make that money work efficiently increase our wealth, we project the amount in the future by investing with a specific interest rate will support us in the decision on the best investment tool to achieve our plans.
Knowing the amount of money that we save to retire with enough capital at the end of our working lives to accumulate money for a down payment on a mortgage or car, calculate the final amount will pay for a credit and any other utility that mean know the value you will have our money in a period of time, are some utilities to know how to calculate the value of an investment in the future.
How can we calculate the future value of a quantity?
To quantify the final amount by a certain date we must know the following information:
M = Amount to invest
It is the amount we invest to achieve our goal.
i = interest per period we will invest
It refers to the collection or payment of interest that apply to our credit or investment in a period of time.
N = number of periods that will be the amount invested.
Our investments or loans will be made for certain periods: monthly, annual or otherwise, where the interest rate applied.
After learning this information and applying the following formula we can calculate the future amount to obtain an initial investment:
Formula to calculate the future value of an amount:
VF = M (1 + i) ^ n
Where:
FV = Future Value
M = Amount to invest
i = Interest
N = Number of periods
Applying this formula, the following fictitious values, would be resolved as follows:
Fictitious Values
M = 10,000
i = 10%
n = 1 year
Substituting:
Future Value = 10.000 (1 + .10) 1
= 10.000 (1.10) 1
= 10,000 (1.10)
VF = 11.000
The final value after investing 10,000 pesos for a year at an interest rate of 10% is 11,000 pesos.
To calculate the next period, the result will give the same application:
Second period:
Future Value = 11.000 (1 + .10) 1
= 11.000 (1.10) 1
= 11,000 (1.10)
VF = 12.100
And subsequently, we can perform the same operation until the number of periods we need.
If we apply the exponential function of a calculator, this operation can be performed more quickly and to a greater number of periods.
The aim of this article is to introduce you to the knowledge of one of the tools most important financial calculations that will help us properly design any economic objective over time. Seeing it put you in the right way to analyze your investments and make sound decisions about your investments and productivity adequately plan for your money. We invite you to consult an expert or directly into one of the many titles of books dedicated to teaching the fundamentals of financial management.
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