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The operation of evaluating a present value into the future value is called a capitalization (how much will $100 today be worth in 5 years?). The reverse operation—evaluating the present value of a future amount of money—is called a discounting (how much will $100 received in 5 years—at a lottery for example—be worth today?).
Therefore, the future value of your annuity due with $1,000 annual payments at a 5 percent interest rate for five years would be about $5,801.91.
The formula for the present value of a regular stream of future payments (an annuity) is derived from a sum of the formula for future value of a single future payment, as below, where C is the payment amount and n the period. A single payment C at future time m has the following future value at future time n:
Future value is linear in the amount of payments, therefore the future value for payments, or rent is: (,,) = ¯ | Example: The present value of a 5-year annuity with a nominal annual interest rate of 12% and monthly payments of $100 is:
The actuarial present value (APV) is the expected value of the present value of a contingent cash flow stream (i.e. a series of payments which may or may not be made). Actuarial present values are typically calculated for the benefit-payment or series of payments associated with life insurance and life annuities. The probability of a future ...
Adjusted present value (APV): adjusted present value, is the net present value of a project if financed solely by ownership equity plus the present value of all the benefits of financing. Accounting rate of return (ARR): a ratio similar to IRR and MIRR; Cost-benefit analysis: which includes issues other than cash, such as time savings.
The day count is also used to quantify periods of time when discounting a cash-flow to its present value. When a security such as a bond is sold between interest payment dates, the seller is eligible to some fraction of the coupon amount. The day count convention is used in many other formulas in financial mathematics as well.
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