Determine out the future value, Financial Accounting

Determine out the future value of Rs.1000 compounded yearly for 10 years at an interest rate of 10 percent.

Solution: The future value 10 years thus would be

FV = PV (1+k)n

FV = 1,000 (1+.10)10

= 1000 . (1.10)10

= 1000 (2.5937)

= 2593.7

The appreciation in current value of an amount can also be shown in terms of return. So the return is the income on investment over every period divided via the amount of investment in the starting of the period.  By the above illustration the arithmetic average return would be (2593.7 -1000)/1000=159.37percent over the ten year period or 15.937 percent per year.  The major problem of using arithmetic average is which it avoids the process of compounding.  For overcome this, the accurate method is to use geometric average return to compute overage annual return.

Rearranging the equation 1 we find out that:

 k = n ((√((FV)/(PV))) - 1)  ................................Eq(2)

By using the values of Eq. 1

= 10 (√(2593.7/1,000) ) - 1

= ((2593.7/1,000)1/10) - 1

= 1.10 - 1

= .10

= 10 %

Posted Date: 4/9/2013 2:25:16 AM | Location : United States







Related Discussions:- Determine out the future value, Assignment Help, Ask Question on Determine out the future value, Get Answer, Expert's Help, Determine out the future value Discussions

Write discussion on Determine out the future value
Your posts are moderated
Related Questions
Unqualified Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). AUDITOR may issue an unqu

Calculation of the actuarial gain/losses in year to 31 December 2010 FV of plan assets PV of plan liabilities $000

This lab assignment will correspond to developing a cash flow budget with an operating loan. There is on lab exercise listed below. Additionally, there are two assignment questions

what is the formulae for calculating Net income?

Assume that we are in December 2009 and try to make forecasts of the five year interest rate at the end of January 2010. For this question , you just need to fill out the blank s

Q. What is Capitalized Interest? Capitalized Interest - INTEREST cost incurred during time required to bring an ASSET tothe condition and location for its intended use and incl

In the above illustration we have consider how the future value modify along with the modification in frequency of compounding. So as to understand the relationship among effectual

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

Process to increase the financial health of company Financial affairs of a limited company enter public domain. With exception of small companies, there is also a requirement f

Q. Calculation of the change in finance costs? Past ACCA examiners have occupied inconsistent approaches regarding the calculation of the change in finance costs due to settlem