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Future value - Financial definition

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Translations:      FR  valeur future (n.f.)     ES  valor futuro (n.m.)     DE  Endwert (n.m.) , Zukunftswert (n.m.) 
Synonym:  compound value

Concise definition of the term future value

The value of a cash amount or that of a series of cash flows at a specific date in the future, after application of agreed upon interest calculations.

Comprehensive definition of the term future value

The actual future value of a given cash amount or a series of cash flows is influenced by:
  • The interest rate applied
    The higher the interest rate, the higher the future value of the amount or cashflows will be
  • The compounding frequency
    The higher the compounding frequency, the higher the future value of the amount or cashflows will be

Examples:

No compounding:

A sum of 10 000 €, placed for 5 years at a simple annual interest rate of 3% would have a future value of 11 500 € ( = 10 000€ x (1 + 5 x 3% ) )

Annual compounding:

A sum of 10 000 €, placed for 5 years at an interest rate of 3% compounded annually would have a future value of 11 592.74 € ( = 10 000€ x (1 + 3%)^5 )

Monthly compounding:

A sum of 10 000 €, placed for 5 years at an interest rate of 3% compounded monthly would have a future value of 11 616.17 € ( = 10 000€ x (1 + 3%/12)^(5x12) )
The future value calculation is the opposite of the present value calculation, where the current value of cash amounts or series of cash flows due in the future are determined.

Additional information related to this definition

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