FV1 Future Value Example

Problem

What will 195,000 grow to in 6 years time if it is invested today in an account with an annual interest rate of 8%?

Solution

The amount of 195,000 (PV) is invested now at the start of period 1, and needs to be compounded forward 6 years (n) to the end of period 6, at a discount rate of 8% (i).

This problem is solved using the future value of a lump sum formula as follows.

PV = 195,000
n = 6
i = 8%

FV = PV x (1 + i)n
FV = 195,000 x (1 + 8%)6
FV = 309,440.49

Explanation

The amount of 195,000 invested today in an account earning 8% compound interest, will grow in to an amount of 309,440.09 in 6 years time.

FV1 Future Value Examples

This is one of many time value of money examples, discover another at the links below.

• Individual Retirement Account Example
• College Fund Example

January 29, 2019