Future Value with a Single Cash Flow for A Single-Period Investment

Future Value with a Single Cash Flow for A Single-Period Investment

Future Value with a Single Cash Flow:

Time value of money for a single cash flow is a cash inflow or outflow that investors or lenders received from or paid to once respectively for specific periods.

Future value (FV) refers to the amount of money an investment or present value (PV) will grow for specific periods of time at specific interest rate.

Future Value = Present Value + all earned interests

A Single-Period Investment:

Definition

A single-period investment may be investment for only one year. Term a single-period can refer to only one day or one month investment, so it isn’t always one year investment.

Formula of future value for a single-period investment

 

FV=PV x (1+i)

Which

PV: Present Value are worth today

FV: Future Value are worth in the future

i: Interest rate, rate of return, or discount rate per period , but not always  one year

Question 1

Suppose you invest $200 in a savings account that bank pays 10 percent interest per year. How much will you have in one year?

Solution

A Single Period is one year for this case, and yearly discount rate is 10%.

FV=PV x (1 +i) = 200 x (1+10%)=$220

You will have $220

Question 2

Mr.David Sok is your friend, and he wants to borrow from you $1,000 with borrowing rate 2% for one month. How much will you have in one month?

Solution

A single period is one month for this case, and monthly discount rate is 2%.

FV=PV x (1 +i) = 1,000 x (1+2%)=$1,020

You will have $1,020