Write the difference between present value and future value.

Banking & FinanceManagementCompanies/Organisations

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.

raja
Published on 24-Jul-2020 11:00:08
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