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Relationship Between FV and PV

# Relationship Between FV and PV - FV PV PV rt A Quick...

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Relationship Between FV and PV The two formulas are opposites: If the FV formula is: FV = PV(1 + r ) t then, the PV formula is: PV = FV/(1 + r ) t Tip : Use the 1/X key to flip a future value factor into a 1

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Time Value of Money 2 Growth Rate: Discount Rate:
Present Value Suppose you need \$10,000 in 10 years and can earn 6.5%. What do you need to invest today? PV = FV/(1 + r ) t = (\$10,000)/(1.065) 10 = \$5,327.26 3

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The Discount Rate Present Value Factor = 1/(1 + r ) t This is also called the discount rate , and will be used extensively for the rest of the course. 4
Summary of Formulas 5 Simple Interest Compound Interest Future Value FV = PV(1+ rt ) FV = PV(1+ r ) t Present Value PV = FV/(1+ rt ) PV = FV/(1+ r ) t Total Interest FV - PV FV - PV Simple Interest

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Unformatted text preview: FV - PV - PV rt A Quick Illustrative 6 Simple Interest Compound Interest Future Value FV = PV(1+ rt ) FV = PV(1+ r ) t Present Value PV = FV/(1+ rt ) PV = FV/(1+ r ) t Total Interest FV - PV FV - PV Simple Interest PV rt PV rt Compound Interest N/A FV - PV - PV rt Principal \$10,000 Simple Interest Compound Interest Rate 0.05 Future Value \$13,500 \$14,071 Time 7 Present Value \$10,000 \$10,000 Total Interest \$3,500 \$4,071 Simple Interest \$3,500 \$3,500 Compound Interest \$0 \$571 Variations of the Formula • If FV = PV(1 + r ) t and PV = FV/(1 + r ) t , the algebraic rearrangements to solve for r and t are: 7...
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Relationship Between FV and PV - FV PV PV rt A Quick...

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