Читать книгу Fundamentals of Financial Instruments - Sunil K. Parameswaran - Страница 90

We have already encountered the concept of future value in our discussion thus far, although we have not invoked the term. What exactly is the meaning of the future value of an investment? When an amount is deposited for a certain time period at a given rate of interest, the amount that is accrued at the end of the designated period of time is called the future value of the original investment.

For instance, if we were to invest $P for N periods at a periodic interest rate of r%, then the future value of the investment is given by

The expression (1 + r)^N is the amount to which an investment of $1 will grow at the end of N periods, if it is invested at a rate r. It is called the FVIF (Future Value Interest Factor). It depends only on two variables, namely the periodic interest rate, and the number of periods. The advantage of knowing the FVIF is that we can find the future value of any principal amount, for given values of the interest rate and time period, by simply multiplying the principal by the factor. The process of finding the future value given an initial investment is called compounding.