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Interest Formulas

Future value of single cash flow.

Single Cash Accumulation - Future Value

The accumulated value of a present sum invested at a given interest rate after some time can be expressed as

F = P (1 + i)n         (1)

where

F = accumulated value in the future- Future Value

P = principal or present sum invested

i = interest rate per period

n = number of interest periods

The factor "(1 + i)n" is known as the "single payment compound amount factor".

Example - Accumulated amount

An amount of 1000 is invested at interest rate 10% (0.1) per year for 10 years. The accumulated amount can be calculated like

F = 1000 (1 + 0.1)10

= 2594

Discounting Process - Present Value

The Present Value - or Present Worth - of a future cash flow can be calculated with the discounting process and is expressed like

P = F / (1 + i)n         (2)

where

P = present value

F = future cash flow

i = discount rate or discounting factor

n = numbers of periods

The factor "1 / (1 + i)n" is known as the "single payment present worth factor".

Example - The present value of a future sum

A sum of 1000 is paid after 10 years. The discount rate is 10% (0.1) per year. The present value of the future payment can be calculated like

P = 1000 / (1 + 0.1)10

= 386

Related Topics

• Economics

Engineering economics - cash flow diagrams, present value, discount rates, internal rates of return - IRR, income taxes, inflation.

Related Documents

• Cash Flow Diagrams

The future value of money.
• Discrete Compounding Cash Flow Formulas

Discrete payments compounding equations and online calculators .
• Interest Rate

Interest rate is the cost of money.
• Internal Rate of Return - IRR

Internal Rate of Return (IRR) - the break-even interest rate.
• Net Present Worth (NPW) of a Cash Stream

The value of a stream of payments is called the Net Present Worth (NPW).
• Present Value

The value of money in the future is the Present Value.

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Citation

• The Engineering ToolBox (2008). Interest Formulas. [online] Available at: https://www.engineeringtoolbox.com/interest-formulas-d_1230.html [Accessed Day Month Year].

Modify the access date according your visit.

7.25.9

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