Future value
What an amount invested today grows to after a stated number of periods at a given rate per period, with interest earning interest along the way.
Where you will meet it
Future value appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Work out what a cash flow will be worth in future
“The future value of a single cash flow is FV = PV x (1 + r)^n, where r is the interest rate per period and n the number of periods.”
- Explain the pricing of fixed-income forwards and futures, and work out their no-arbitrage value and say what it means
“Compound the full price to delivery, subtract the future value of coupons received before then and the accrued interest at delivery, and, for futures, divide by the delivered bond's conversion factor, so the quoted futures price is F0 = [(B0 + AI0) × (1 + r)^T − AIT − FV of coupons] ÷ CF.”
Learn it properly
- Time value of money explained: present value, future value and annuities
- Time value of money calculator
Practise it
Practise future value until it is automatic: questions that explain every wrong option.
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