If money has a time value, then the future value will always be more than the original amount invested.ġ0. For a given nominal interest rate, the more numerous the compounding periods, the less the effective annual interest rate.ĩ. All other things being equal, I'd rather have $1,000 today than to receive $1,000 in 10 years.Ĩ. Bank B is paying twice as much interest.ħ. Bank B's savings account pays 6 percent compounded semiannually. A saving account at Bank A pays 6 percent interest, compounded annually. If you would like to double your money in 8 years, the approximate compound annual return you need is 9 percent (Rule of 72).Ħ.
The present value interest factor for a dollar on hand today is 0.ĥ. The present value or PV is the initial amount (the amount. If the discount rate decreases, the present value of a given future amount decreases.Ĥ. The present value formula consists of the present value and future value related to compound interest. The formula to calculate the present value is as follows: PV FV / (1+r) n Or PV FV 1/ (1+r) n Where, PVPresent value or the principal amount FV FV of the initial principal n years hence r Rate of Interest per annum n number of years for which the amount has been invested. The present value interest factor (PVIF) is the reciprocal of the future value interest factor (FVIF).ģ. Finding the present value is simply the reverse of compounding.Ģ.
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