what is future value fv 
future value fv is the value of a current asset at a future date based on an assumed growth rate investors and financial planners use it to estimate how much an investment today will be worth in the future external factors such as inflation can adversely affect an asset s future value future value can be contrasted with present value pv investopedia yurle villegasfuture value formulathe future value calculation allows investors to predict the amount of profit that can be generated by assets the future value of an asset depends on the type of investment the future value formula assumes a stable growth rate if money is placed in a savings account with a guaranteed interest rate then the future value is easy to determine accurately however investments in the stock market or other securities with a volatile rate of return can yield different results the future value formula assumes a constant rate of growth and a single up front payment left untouched for the duration of the investment if an investment earns simple interest compounded annually then the fv formula is f v p v 1 r n where f v future value p v present value r interest rate per period n number of periods begin aligned fv pv times 1 r n textbf where fv text future value pv text present value r text interest rate per period n text number of periods end aligned fv pv 1 r nwhere fv future valuepv present valuer interest rate per periodn number of periods if a 1 000 investment is held for five years in a savings account with 10 simple interest paid annually the fv of the 1 000 equals 1 000 1 0 10 x 5 or 1 500 with compounded interest the rate is applied to each period s cumulative account balance in the example above the first year of investment earns 10 1 000 or 100 in interest the following year however the account total is 1 100 rather than 1 000 to compound interest the 10 interest rate is applied to the full balance for second year interest earnings of 10 1 100 or 110 the formula for the fv of an investment earning compounding interest is f v p v 1 r n t where f v future value p v present value r interest rate per period n number of periods t time in years begin aligned fv pv times 1 r nt textbf where fv text future value pv text present value r text interest rate per period n text number of periods t text time in years end aligned fv pv 1 r ntwhere fv future valuepv present valuer interest rate per periodn number of periodst time in years using the above example the same 1 000 invested for five years in a savings account with a 10 compounding interest rate would have an fv of 1 000 1 0 10 5 or 1 610 51 bearish about the market future value can also handle negative interest rates to calculate scenarios such as how much 1 000 invested today will be worth if the market loses 5 each of the next two years using fv calculationslimitationsrelies on readily available estimateslump sum or simple cashflows may be easy to calculatefuture value helps determine whether an investor meets a target or goal the concept of future value can be applied to any cashflow return or investment structure estimates may be quickly invalidatedfuture value of annuities or irregular cashflow may be difficult to calculatefuture value cannot be used to compare and choose between two mutually exclusive projectsfuture value models assume constant rate growthfuture value vs present valuethe concept of future value is often closely tied to the concept of present value future value calculations determine the value of something in the future and present value finds what something in the future is worth today both concepts rely on discount or growth rates compounding periods and initial investments the future value formula could be reversed to determine how much something in the future is worth today in other words assuming the same investment assumptions 1 050 has the present value of 1 000 today by changing directions future value can derive present value and vice versa the future value of 1 000 one year from now invested at 5 is 1 050 and the present value of 1 050 one year from now assuming 5 interest is 1 000 examplesthe internal revenue service imposes a failure to file penalty on taxpayers who do not file their returns by the due date the penalty is calculated as 5 of unpaid taxes for each month a tax return is late up to a limit of 25 of unpaid taxes 1 if a taxpayer knows they have filed their return late and are subject to the 5 penalty that taxpayer can easily calculate the future value of their owed taxes based on the imposed growth rate of their fee the taxpayer expects to have a 500 tax obligation the taxpayer can calculate the future value of their obligation assuming a 5 penalty imposed on the 500 tax obligation for one month in other words the 500 tax obligation has a future value of 525 when factoring in the liability growth due to the 5 penalty consider a zero coupon bond trading at a discount price of 950 the bond has two years to maturity with a target yield to maturity of 8 if an investor is interested in knowing what the value of this bond will be in two years they can calculate the future value based on the current variables in two years the future value of this bond will be 1 108 08 950 1 8 2 through treasurydirect the u s department of treasury bond website investors can utilize calculators to estimate the growth and future value of savings bonds 2