Future value of single or multiple cash flows, Finance Basics

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Future value of single or multiple cash flows

To determine the future value of cash flows, we must apply the compounding technique. Compounding may be yearly/annually, half-yearly, quarterly, monthly etc.

Future Value of Single Cash Flow

Future value can be calculated by the following formula:

FVn      =          PV (1 + r)n

Where

FV=          Future value

PV=          Present value

r  =          Rate of Interest

n  =          Number of periods

Example: FV of single cash flow compounded annually

Let us compute the future value of an investment of $ 2,000 compounded annually/yearly at the rate of 12%, after 4 years period.

FV

=

$ 2,000 x (1 + 0.12) 4


=

$ 3,147.04

 

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