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Future value factor



The formula for the future value factor is used to calculate the future value of an amount per dollar of its present value.

The future value factor formula is based on the concept of time value of money. The concept of time value of money is that an amount today is worth more than if that same nominal amount is received at a future date. Any amount received today can be invested and receive earnings, as opposed to waiting to receive the same amount with no earnings. An amount of $105 to be received a year from now may be okay if the individual wants $100 today, assuming that the individual can earn 5% otherwise in one year.

It is important when using the formula for the future value factor to match the rate per period with the number of periods. The number of periods should also match how often an investment is compounded.