Determining the future value, Financial Accounting

Let us assume that you deposit Rs.1000 in a bank that pays 10 percent interest compounded yearly for a period of 3 years. The deposit will grow as given details:

First Year

 

Principal at the beginning. Interest for the year (1000x.10) Total amount

Rs.

1000

100

1100

Second Year

Principal at the beginning. Interest for the year (1100x.10). Total Amount

1100

110

1210

Third Year

Principal at the beginning. Interest for the year (1210x.10)

Total Amount

1210

121

1321

 

 

 

 

 

 

 

 

 

 

To acquire the future value from current value for one year period:

FV = PV  + (PV . k)

 Here PV = Present Value;

k = Interest rate

 FV =  PV (1 + k)

 As the same for a two year period:

FV       =    PV

+          (PV × k)

+          (PV × k)

+      (PV × k × k)

 

Principal amount

 

First period interest on principal

 

Second period interest on the principal

 

Second periods interest on the first periods interest

FV = PV+PVk+PVk+PVk2

= PV+2PVk+PVk2

= PV (1+2k+K2) = PV (1+k)2

Hence, the future value of amount after n periods is as:

FV = PV (1+k)n  ............................Eq(1)

Here FV = Future value n years thus

PV = Cash today or present value

k    = Interest rate par year in percentage

n    = number of years for that compounding is done

Equation (1) is the fundamental equation for compounding analysis. Here the factor (1+k)n is considered as the future value interest factor or the compounding factor (FVIFk,n). Published tables are obtainable showing the value of (1+k)n for different combinations of k and n.  In such table is specified in appendix A of this section.

Posted Date: 4/9/2013 2:24:15 AM | Location : United States







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

Write discussion on Determining the future value
Your posts are moderated
Related Questions
Classifying expenses by nature Under this format, expenses are not classified by their nature i.e. referred to specifically according to their type and the major categories of ex

A huge number of variations of ROT are determined in practice, based upon how "Investment" and "Return" are explained "Investment" may be explained to comprise any of the subsequen

Q. Primary restriction of making demand? The primary restriction of making demand forecasts lies in the fact that they are forecasts and hence their reliability is unknown. Mos

Statement of Retained Earnings Landon Corporation was organized on January 2, 2010, with the investment of $100,000 by each of its two stockholders. Net income for its first year o

Illustration-statement of Changes in Net Assets-pension fund (a) What meetings of creditors must be held and for what purpose in the course of a creditors’ voluntary winding up

Describe the concept of full cost recovery with illustrative examples.

Purchased used truck for 8,000 ,paying 2,000 cash and the balance on account

Find the current value of the following ordinary annuities. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to se

Concept of accounting for Wealth creation It is significant to recognise that generating wealth for the owners isn't the same as seeking to maximise the current year's profit.

During FY 2014, the voters of Surprise County approved construction of a $21 million police facility and an $11 million fire station to accommodate the county's population growth.