Example 19 - Future Value Calculation

This example applies to our online demo Time Value of Money Calculator. The C-Value! program for Windows works in a similar way and has a few more features. Note, our online demo TVM calculator is limited to calculations using interest rates between 4.0% and 5.99%

Note:This topic has not been proofed and images need to be added. However, we believe that the steps are complete and accurate.

The future value is the value of a cash flow at some future date.

2. Click the [New] button to clear any previous entries.
4. Set "Rounding" to "Ignore" by either:

• clicking on the "Rounding" button on the toolbar;
• clicking on the {Compute} menu choice and select {Rounding...};

1. For greater detail about how values are entered into C-Value!, please see "Example 1 - conventional mortgage or loan".
2. The cash flow may be a single amount or a series of deposits, withdrawals or payments. When calculating the future value, the amount for the final entry is always "Unknown".
3. The classic FV example assumes some series of deposits and answers the question "How much will the deposits be worth at some future point?". For this example, we are going to turn things around. We will assume a starting value with periodic withdrawals so that we can answer the question "How much will be left after withdrawing X for Y number of periods?".
4. 1) Open the C-Value! Setup Window. Press either [F6] or select {Settings}{Compute Setup} from the menu.
5. A) For the "Compute Method" select the "Normal" option.
6. B) Set the "Year Length" to 360.
7. C) Click on the [OK] button to close the Window.
8. 2) Set compounding to "Daily".
9. 3) Enter 4.5% for the "Nominal Annual Rate". The is the annual rate of return you are assuming you can earn on any investments you make. This is also known as your "discount rate".
10. 4) Create the first event as a "Deposit".
11. A) Set the "Date" to October 1, 2004. (10/01/04)
12. B) For the "Amount", enter $50,000. (this is the cash on hand)
13. C) Enter 1 for the "# Periods".
14. 5) Create the 2nd event. It will be a "Withdrawal".
15. A) Enter the "Date" as November 1, 2004
16. B) Enter the "Amount" as $1,000.
17. C) Enter 48 for "# Periods"
18. D) Select "Monthly" for "Frequency". Then "End Date" will be October 1, 2008. That is, the last withdrawal will be on this date.
19. 6) Create the 3rd event by clicking on row 3. This too will be a "Withdrawal" event.
20. A) Set the date to October 1, 2008. We reset the date to the "End Date" because we want to know the future value of this cash flow immediately after the last withdrawal was made.
21. B) Set the "Amount" to "Unknown".
22. 7) Set Rounding to "Last Withdrawal"
23. 8) Click on "Calculate" to solve for the unknown future value. The result is $7,453.08. In other word, assuming a present value of $50,000 and allowing for regular periodic withdrawals of $1,000 each, the final withdrawal or value in the future will be $7,453.08.
24. 9) If you want to see a detailed cash flow schedule showing just what the initial deposit earns in interest, click on the "Amortization" tab above the input area or press [F4]. Notice that the withdrawals will total $55,453.08 and that the initial deposit earned $5,453.08 in interest even as it is being depleted due to the withdrawals.
25. Variation: You can easily find the future value of a series of deposits as well. Using the above example, set the second event to "Deposit" in Step 5 above. So rather than withdrawing $1,000 a month, we are saving $1,000 every month. Reset the 3rd event's "Amount" to "Unknown" and recalculate. Now the future value is $112,582,05.
26. Second Variation: You can also determine the future value of a single amount (as opposed to a series). Again, using the original example as a starting point, click on the 2nd input row. Delete this row by pressing [Ctrl][D] or clicking on the delete button on the toolbar. Set the "Amount" of the final "Withdrawal" event (now the second row) to "Unknown" and recalculate. Now the future value is $60,017.52. So a present value of $50,000 will be worth, or have a future value of $60,017.52 in four years assuming a 4.5% nominal annual interest rate with daily compounding.

Back to the online Time Value of Money Calculator.