![]() ![]() From Future Value to Present Value of a Lump SumĪ lump sum received in the future and discounted back at a compounding interest rate (the money you would loose by not being able to invest it now) will have a present value. In this example, the 100 is the lump sum received now referred to as the present value, and the 110.25 is the value in 2 years time at an interest rate of 5% and is called the future value. ![]() If you have 100 and deposit it at 5%, after 1 year you would have 100 + 100 x 5% = 105, after 2 years you would have 105 + 105 x 5% = 110.25. They are best looked at by way of example.įrom Present Value to Future Value of a Lump SumĪ lump sum received now and deposited at a compounding interest rate for a number of periods will have a future value. The lump sum present and future value formulas can be used to calculate the effect of time and compounding interest rates on the value of the lump sums. The time value of money concept in financial management is used to compare lump sum cash flows which are received or paid at different times. ![]()
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