While investing in a share or an asset you must have come across the word “Future Value” several times. The concept on Future Value is very simple. It is based on the time value of money which says that the value of money keep changing with time and so is the value of an asset (or share).
Theoretically, Future Value is the nominal future amount of money that a particular amount of money is “worth” at a given time in the future. In calculating this worth we integrate certain factors such as interest rate or rate of return.Method of Calculation:
We use the formula of simple interest for calculating the future Value of an asset with simple annual interest.
Future Value of an asset = Present Value x (1+ (rate of interest x time))
Similarly we use the formula of compound interest for an asset with interest that compounds annually
Future value of an asset =Present Value x ((1+interest rate) ^ time
The Future Value of any asset or share is very helpful while making an investment decision. If you have two option of company A and company B, the future value will decide in which company you should invest.
Assesing the future value of an asset or share while planning the future. Usually the value of an asset like land or precious metals like gold increases with time but what about the value of shares whose pricrs are so unpredictable? Considering them for future is risky. The article is short and crisp with easy formulas but few more example were needed.
For an inexperienced investor quite useful article, explaining what is one of the general features that needs to be taken into consideration, while deciding which company is the better choice for an investment. Even though you should certainly look up some additional information about the company or area you are thinking to invest in, the future value still remains a quite strong indicator.