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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.
Updated on: 24-Jul-2020
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