Future Value - FV

Ommmmm. Or...should this be more like a “mirror mirror on the wall” thing? Who’s the futurist value of them all?

Eh, maybe not. Well, hopefully you get the gist of present value. That is, where you take a pot of profit supposedly being given to you at some point in the future, n years away. It carries some risk.

And there is a current risk-free guaranteed rate of return that this risk has to sit upon. Like...an 8 percent on top of a 3. You’re promised 10 grand in 5 years, and you discount it back to its present value as 10 grand over 1.11 to the 5th power, which is a hair under 6 grand. So future value is the inverse thing.

Here, you’re just taking a given compounded number in whatever form and coming up with its future value. Like...you’re buying a bond that pays 5% a year interest. And you want to know how much cash it will have thrown off in the next 10 years before it then comes due. You’ll add up the flows of cash on 100 grand invested; that's 5 grand a year, or $2,500 twice a year.

But what about the cash you get sooner rather than later? Shouldn’t that go into the future value calculation? Well, yes. That distributed money just gets re-compounded and thrown into the stone soup of future value financial calculations.

The key delimiters: risk and risk-free rate, which are financial leeches against what that total future value might be.

When in doubt, consult the crystal ball. Or the magic mirror, if you’ve got one.