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Future Value of a Single Cash Flow

CFA® Exam Level 1, Financial Mathematics

Time Value of Money (CFA L1) Future Value of a Single Cash Flow

Future value of a single cash flow refers to how much a single cash flow today would grow to over a period of time if put in an investment that pays compound interest.

The formula for calculating future value is:

fv1

Example

Calculate the future value (FV) of an investment of $500 for a period of 3 years that pays an interest rate of 6% compounded semi-annually.

FV = 500*(1+6%/2)^(2*3) = $597.03

We can also solve this problem using the calculator as follows:

Calculator Variables

The BA II Plus calculator has the following five variables for Time Value of Money (TVM) functions.

N = Number of Periods (mT in our formula)

I/Y = Interest Rate Per Year (r)

PV = Present Value

FV = Future Value

PMT = Payment

The calculations are simple; you input the values that you know, and calculate the unknown.

To assign a value to a TVM variable, key in the number and press a TVM key – N, I/Y, PV, PMT, and FV.

To change the number of payments (P/Y) press 2nd, key in the number and press ENTER.

To calculate the unknown value, press Compute (CPT) and then press the key for unknown variable.

In our above example, enter PV = 500, change P/Y = 2 (semi-annual compounding), I/Y = 6, N = 6.

Then press CPT > FV. We get:

FV = 597.026

Similarly we can calculate the Future Value for any compounding frequency.

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In this Course

Course Home
Introduction – Time Value of Money
Interest Rates
Interest Rate Equation
Nominal Interest Rate and Effective Yield
Time Value of Money for Different Compounding Frequencies
Future Value of a Single Cash Flow
Present Value of a Single Cash Flow
Future Value and Present Value of Ordinary Annuity
Present Value and Future Value of Annuity Due
Present Value of a Perpetuity
Present Value and Future Value of Uneven Cash Flows
Annuities with Different Compounding Frequencies
Using a Timeline to Solve Time Value of Money Problems
Time Value of Money Quiz 1 ( Reading 6, CFA Level I)
Return to Time Value of Money (CFA L1)

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