Interest Formulas
Single cash flow formulas
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Single Cash Accumulation
The accumulated value of a present sum invested at a given interest rate after some time can be expressed as
F = P (1 + i)n (1)
where
F = accumulated value in the future
P = principal or present sum invested
i = interest rate per period
n = number of interest periods
The factor "(1 + i)n" is known as the "single payment compound amount factor".
Example - Accumulated amount
An amount of 1000 is invested at a interest rate 10% per year for 10 years. The accumulated amount can be calculated like
F = 1000 (1 + 0.1)10
= 2594
Discounting Process
The present value of a future cash flow can be calculated with the discounting process and is expressed like
P = F 1/(1 + i)n (2)
where
P = present value
F = future cash flow
i = discount rate or discounting factor
n = numbers of periods to the cash flow
The factor "1/(1 + i)n" is known as the "single payment present worth factor".
Example - The present value of a future sum
A sum of 1000 is paid after 10 years. The discount rate is 10% per year. The present value of the future payment can be calculated like
P = 1000 1/(1 + 0.1)10
= 386
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Related Topics
- Economics - Engineering economic concepts - cash flow diagrams, discount rate, internal rate of return - IRR, income taxes, inflation
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Related Documents
- Cash Flow Diagrams - Time and value of future money
- Discount Rate - The Present Value of future money
- Discrete Compounding Formulas - Discrete compounding formulas with discrete payments
- Interest Rate - The cost of money
- Internal Rate of Return - IRR - Internal Rate of Return - IRR - the project break-even interest rate
- Net Present Worth - NPW - of a Stream of Payments - Net Present Worth - NPW - or Value of a stream of payments
