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What is Future Value?

Future Value is the hypothetical value of an investment at a specific date in the future. The future value (FV) of an investment or business is a calculation used in several types of planning and accounting.

In a Time Value of Money (TVM) calculation, the Future Value is often the starting point, and the interest rate that will be earned in the meantime is called Discount Rate, and is discounted by the number of years of periods back to the present time. This allows investors to see the Present Value (PV), which is a lesser, discounted amount from the future value, and gives us the premise for the Time Value of Money, which is that “a dollar today is worth more than a dollar tomorrow.”

This is partially due to the effects of inflation and the buying power of a unit of currency, and it also has to do with Opportunity Cost, which means that, with a dollar today, you have the opportunity to invest it and earn more money. If that dollar is not present today, or if it is used on something which doesn’t earn interest, the opportunity for a larger slice of Future Value is lost.

Keywords: discount rate, opportunity cost, present value, time value of money,