BF - LESSON 4: LONG-TERM FINANCIAL CONCEPTS

BF - LESSON 4: LONG-TERM FINANCIAL CONCEPTS

SIMPLE INTEREST

FUTURE VALUE

FUTURE VALUE = PRINCIPAL ( 1 + RATE x TIME )

INTEREST = PRINCIPAL x RATE x TIME

PRESENT VALUE

PRESENT VALUE = FV / ( 1 + RATE x TIME )

COMPOUND INTEREST

FUTURE VALUE

FUTURE VALUE = PRESENT VALUE (1 + RATE) ^ TIME

PRESENT VALUE

PRESENT VALUE = FUTURE VALUE / (1 + RATE) ^ TIME or

PRESENT VALUE = FUTURE VALUE (1 + RATE) ^ -TIME

COMPOUND INTEREST

Compounding of interest can also be done monthly, quarterly, and semi-annually and if that is the case, the formula should be

Future Value = Principle x (1+i)^t

whereas:

i = rate / compounding of interest;

t = time x compounding of interest