Future value and perpetuity, are different things. Future value is basically the value of cash, under any investment, in the coming time i.e. future. On the contrary, perpetuity is a kind of annuity. It is an annuity where the payments are done usually on a fixed date and time and continues indefinitely. Continue reading to know more about the subjects.
Browse more Topics Under Time Value Of Money
Simple and Compound Interest
Effective Rate of Interest
Present and Net Present Value
Future Value and Perpetuity
Annuities and Sinking Funds
Valuation of Bonds and Calculating EMI
Calculations of Returns
As mentioned earlier, the future value is nothing but the value of the money or cash that happens in any sort of investment in the coming future. Hence, it specifically tells the value of today’s money that it will amount to in the coming future.
So, for example, suppose you are investing a sum of Rs. 2,000 in some fixed deposit. For the same, you receive a rate of interest of 7%. Therefore, by the end of the very first year, you gain Rs. 2,140. Hence, the amount Rs. 2,140 holds the principal amount i.e. Rs. 2,000 and the interest i.e. Rs. 140.
Furthermore, we can say that, “Rs. 2,140 is nothing but the future value of today’s money i.e. Rs. 2,000 kept for a year at an interest rate of 7%.” Hence, we can claim the fact that, Rs. 2,140 is tomorrow’s value of today’s money.
Similarly, you can calculate the value of Rs. 2,140 after two years and so on. All you need to do is apply the formula for compound interest to get the value of your today’s money after a certain time span.