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Finance: Future value and present value

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  1. What is the future value of $30,000 which grows at an annual interest rate of 11%, compounded monthly, for three years?
    1. What is the present value of $15,000 sixteen months from now if the annual discount rate is 10%, compounded quarterly?
      Topic Notes
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      In this section, we will revisit the connection between mathematics and finance, but from a different perspective. We will see how a slight variation of the Compound interest formula can help us understand some of the core concepts in Finance – Future value and Present value.
      future value and present value: FV=PV(1+rn)nt { FV = PV (1+\frac{r}{n})^{nt}}

      FV {FV} : Future Value
      PV {PV} : Present Value
      r {r} : Annual interest rate
      t {t} : total time given in years
      n {n} : number of times compounded in a year, if

      Compound daily:

      n = 365

      Compound monthly:

      n = 12

      Compound quarterly:

      n = 4

      Compound semi-annually:

      n = 2

      Compound annually:

      n = 1

      Basic Concepts
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      Related Concepts
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