Write the difference between present value and future value.

The major differences between present value and future value are as follows −

Present value

• Current value of cash flow in future.

• Current value of an asset or an investment at starting of a particular time period.

• Inflation is considered.

• Discount rate and interest rate are considered.

• Helps investors in decision making.

• Discounted process/method is followed.

• Present value = (cash flow)/ (1 + r)^n.

Future value

• Value of future flow after certain future period.

• Value of an asset or an investment at the end of a particular time period.

• Inflation is not considered.

• Only interest rates are considered.

• Least considered by investors in making investment decisions.

• Capitalization process/method is followed.

• Future value = (present value) or (cash flow) (1 + r)^n.

Mandalika

Updated on 24-Jul-2020 07:30:08

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