**Suppose now you have $3000 in hand today,it must be worth more than someone promise to give you $3000 in the next 2 year.because with $3000 in hand today, it can be invested in a bank or fixed income securities(Bond) for example 5% interest rate,so in the next 2 year you will have the principle + interest income.**

**Formula**

**FV = PV(1 + r)t**

**FV = future value****PV = present value****r = period interest rate, expressed as a decimal****T = number of periods****Future value interest factor(FVIF) = (1 + r)t**

**Example:**

**Method 1****Future Value (FV)**= $3,000(1 + .05)^2 = $3,306

**Method 2**

**PV = present value =**$3000

**r=**5%

**T=**2 year

**Future value interest factor (FVIF) = (1 + r)t can be found in the table below**is the interest rate 5% for 2 years is

**(1+r)t = 1.102**

**Future Value (FV)**=

**PV(FVIFi,n)**or $3,000(1.102) = $3,306

**Using Financial calculator**

**Method 4****Using Excel spreadsheet**

**Present Value:**is the The current worth of a future sum of money or stream of cash flows discounted by the Interest rate

**(Discount rate,Cost of capital, Opportunity cost of capital,Required return)**

**As we can see in the previous example that $3000 to be received in the next 2 year probably worth less than $3000 in hand today.because $3000 today can be saved with 5% interest rate and in the 2 years time we will receive $3,306. so to find the 3000$ to be received in the next 2 year and how much it's worth today,it have to be discounted with 5% as an opportunity cost.**

**Formula**

**PV = FV/(1 + r)t or FV*( 1/(1+r)t)**

**FV = future value****PV = present value****r = period interest rate, expressed as a decimal****T = number of periods****Present value interest factor(PVIF) = 1/(1 + r)t****or Discount Factor**

**Example:**

**Method 1****Present Value (PV)**= $3,000/(1 + .05)^2 = $2,721

**Method 2**

**FV = Future value =**$3000

**r=**5%

**T=**2 year

**Present value interest factor(PVIF) or Discount Factor = (1 + r)t can be found in the table below**is the interest rate 5% for 2 years is

**1/(1+r)t =0.907**

**Present Value (PV)**=

**FV(PVIFi,n)**or $3,000(0.907) = $2,721

**Method 4****Using Excel spreadsheet**

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