Chapter 4.10® - Summary of Time Value Formulas & Calculations
PV = Present Value, what expected future cash flows are worth today.
FVt = Future value, what today’s cash flows are worth in the future.
r = Interest rate or rate of return or discount rate per period – Usually is compounded annually or once a year.
t = Number of periods, usually 1 year or several years.
C = Cash amount today
ii) Future value of C invested at r percent for t periods
FVt = C x (1 + r)t
This is also known as the future value factor.
iii) Present value of C to be received in t periods at r percent per period
PV = C / (1 + r)t
The equation 1 / (1 + r)t is also known as the present value factor.
iv) Basic Present value equation describing the relationship between present & future value
PV = FVt / (1 + r)t