ECON 435: Present and future value
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ECON 435 > ECON 435: Present and future value
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Present Value
- Present value of $1:
- PV = $1(1+interest)^t
Present value formula
This works given a constant payment C, and a constant interest rate r
- PV= C[(1-(1/1+r)^t)/r]
Present value due
- PVdue = PV x (1+r)
- check out more about this
Future value
- Future value of $1
- FV = $1(1+interest)^-t
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The Rule of 72
- If you earn r% per year, your money will double in about 72/r%
- For example, if you invest at 6%, your money will double in about 72/6 or 12 years.
The rule of 115
- If you earn r% per year, your money will triple in about 115/r%
Forumla to calculate time
- Given future value, present value and r
- FV = PV(1+r)^t
- FV / PV = (1+r)^t
- (lnFv - lnPV) = tln(1+r)
- t = (lnFV - lnPV) / ln(1+r) when r > -1
Another time forumla
Works given a set rate (r) and known present value (PV). t = -ln{1-[r x PV] / C} / ln(1+r)
Find constant payment
C= [r x PV] / {1-(1+r)^-t}
