IO - Present and Future Value Lesson

Present and Future Value

Introduction

Have you ever heard the phrase, “Time is money?” There is a strong connection between the two! There are many ways of earning money that are solely based on time. You are paid for your time in the office or your time spent babysitting. Another connection revolves around inflation and how $1.00 isn’t worth the same as it was 50 years ago.

This brings us to the concept of investing your money. If you stuff $100 into an envelope and let it sit for ten years, it might technically be worth LESS when you take it back out ten years later. Investing is an important way to allow your money to grow WITH time.

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Future Value

When you invest money, it is assumed that your money will grow. The future value is the value of the money you are investing now at some date in the future. The formula for future value may look very familiar. It is very similar to the compound interest formula.

Click through the interactive activity below. Be sure to take down important notes, such as formulas, and attempt the practice example on your own before viewing the solution!

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Present Value

If you know the future value of an investment, you can find the present value. This helps when if you are trying to figure out how much to invest now based on how much you are looking to have in the future. The same formula is used, but it will be solved for PV, instead of FV. 

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Using a Spreadsheet Program 📊

Calculating Future and Present Value in Excel

The following video will show you how to use a spreadsheet program, such as Microsoft Excel, to automatically calculate the future and the present value of a loan. Take notes and attempt to follow using your own spreadsheet.

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Present and Future Value Practice

Click on the arrow on the bottom right to move to the next question.

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