The value of an investment can be defined as the significance and worth of it to anyone who may be concerned directly or indirectly. This value is majorly dependent on the expectation and requirement of the individual investor. It is true that the aim of every investment is to bring future returns, but in actual sense, there will be no good profits if the worth of the business is not up to standard in its current state. The worth today is far more than whatever it may amount to in future. Another way of looking at it is this; a bird at hand is worth more than a thousand in the bush. So, an investor should properly calculate the value of any form of investment worth undertaking in order to prevent losses and maximize profit.
HOW TO CALCULATE THE PRESENT VALUE OF AN INVESTMENT
The present value can be defined as the current worth of it. The major aim of calculating the present value is based on determining if all is well with it. The present value is calculated if the inventor has an idea of the future amount of the investment, the rate of profit expected, and the length of time he plans to hold it. The present value is then calculated as follows:
For example, an investor after an investment of 2 years wants to have a savings of 100,000 dollars for 20 periodic times. The calculation of the present value can help the investor to determine how much should be placed apart today in other to attain his future goal. The investor then believes he requires a 5% interest rate in other to increase the value of the principal.
Where PV= present value of investment
X= future value of investment expected
R= periodic rate of return for the investment
N= number of periods
Therefore, PV= 100,000/ ((1+5) ^20
HOW TO CALCULATE FUTURE VALUE OF AN INVESTMENT
The future value of an investment can be defined as the worth of an existing business at a particular point in time in the future based on a presumed volume 0f growth over time. When based on a known growth rate, a 10,000 dollars investment made in today’s current date can be worth 100,000 dollar in the nearest future; which means the future value of the 10,000 dollar investment is 100,000 dollar. For example, an investment of 100 dollar was made with an interest rate of 5%. The future value will be calculated as:
FV=PV+PV (1+R) ᶯ
In conclusion, the present value illustrated above indicates that the investor should set aside 37,688.95 in today’s investment in other to attain the 100,000 dollar expected. Therefore, the calculation of the value of investment is a crucial aspect of investment in other to achieve success.
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