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
Illustrations of Changes in accounting estimates B Ltd., bought an item of plant at a total cost of £100,000. The estimated useful life commencing from 1st January 2000 was 10

petra corporation purchased P4,000 worth of merchandise on account terms 2/10, n?30, FOB shipping point. Prepaid transportation charges of P200 were added to the invoice.

Calculate the present value and determine the npv, Financial Management. Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently em

Mr. Inherits 30000. Decides to open a salon jj salon. On 1/4/2016 commits 10000 to the business Opens an a/c in the bank What will be the money under capital in his books on 1/4/10

LANDLORD'S RIGHT OF DISTRESS The Landlord's right to distrain for arrears of rent is not lost on the tenant's bankruptcy, but 1) Distress can only be levied after commencement

Deferred taxation is caused by timing differences that arise when a transaction is recognized differently for accounting and tax purposes; for i.e, capital expenditure, that invol

An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the next 5 years. The firm's cost of capital

State the users of accounting information Environment has brought new challenges for managers and other users of accounting information. Their requirements have changed and bot

Adjusting Entries Clapton Guitar Company entered into the following transactions during 2013. [The transactions were properly recorded in permanent (balance sheet) accounts unless