A onetime investment is a business opportunity where one has to invest once and reap the benefit throughout a mutually agreed policy time. There is need for the investor to understand what is stated in the policy because that is what will guide the business all through its period of duration. As is the case with a onetime venture, or any kind of business for that matter, the roles and responsibilities of every party involved should be clear to all. This includes the decision that will be taken if for any reason the business did not go as planned.

HOW TO CALCULATE THE FUTURE VALUE OF ONETIME INVESTMENT

There are different ways of calculating the future value of an investment, but for the purpose of this article, our focus will be on a method that makes use of a financial formula known as “the future value of a lump sum investment”. With this formula, one can calculate the future worth in three different ways, namely;

-    Using a financial calculator

-    The problem and the future value formula

THE PROBLEM AND THE FUTURE VALUE FORMULA

This formula is pretty straight forward and does not need any prior knowledge of other tools like the spread sheet.

Jane Doe is an investor and she has \$100 with a 5% interest rate according to the business policy. What will the worth of her investment be at the end of 5 years?

Formula;

FV1 = PV + INT

OR

FV1 = PV (1 + I) n

Where

FV = Future value

PV = Present value

The subscript (1) = the present value plus the added value at the specified interest rate

The superscript (n) = the number of compounding period

The first formula reads thus; the future value (FV) at the end of one year (1) equals the present value (PV) plus the added value at the specified interest rate. The second one goes; the future value at the end of one year equals the present value times (1 + I),

Where

1 = Interest rate

The subscript (n) = the number of compounding periods

Using the formula above in Jane Doe’s case, we have

FV = \$100 (1 + 0.05)

= \$105

This is what the value will be at the end of one year. At the end of five years, we will have that

FV = \$100 (1 + 0.05) n = \$110.25

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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