Future Value of your Single Amount

or say your Single Premium Investment.

Calculate it Yourself

Suppose you invest Rs. 1000 for 10 years in a Single Premium that pays 10% Returns per Year If you let your Returns Income be reinvested your Investment will grow as follows:

Sample Illustration - Compounding

Year Principal Amt. Beginning of the Year Returns for the Year @ 10% Principal Amt. End of the Year

1 2 3 4 5 6 7 8 9 10

1000 1100 1210 1331 1464 1611 1772 1949 2144 2358

100 110 121 133 146 161 177 195 214 236

1100 1210 1331 1464 1611 1772 1949 2144 2358

2594

For e.g. Calculate on Investment of Rs. 50000

Year Principal Amt. Beginning of the Year Net Yeild / Returns per Year @ 10%

SP.

Principal Amt. End of the Year

1 2 3 4 5 6 7 8 9 10

50000 55000 60500 66550 73205 80526 88578 97436 107179 117897

5000 5500 6050 6655 7321 8053 8858 9744 10718 11790

55000 60500 66550 73205 80526 88578 97436 107179 117897

129687

Compounding Defined

The process of Investing Money as well as Reinvesting the Returns/Interest earned thereon is called Compounding.
The future value or compounded value of an investment after 'N' Years when the interest rate is 'R' percent.

FORMULA

FV n = PV (1+ r)n

In this formula (1+r)n is called the Future Value (FV) Return / Interest factor or simply the FV factor.

Ways to find FV factors

You can multiply 1.10 by itself ten times.

More generally (1+r) by itself 'n' times

Most calculators have key 'yx'. Enter 1.10, press key 'yx', enter 10 and press key '=' to get answer.
You can construct a table showing FV factors in a combination of period (n) and rate of return (r).

Future Value in Combinations of N/R

N/R Net ROR @ NET ROR @ NET ROR@ NET ROR @ NET ROR

Years/Rate
2 4

6%
1.12 1.26

8%
1.17 1.36

10%
1.21 1.46

12%
1.25 1.57

14%
1.30 1.69

6
8 10

1.42
1.59 1.79

1.59
1.85 2.16

1.77
2.14 2.59

1.97
2.48 3.11

2.19
2.85 3.71

15 20

2.40 3.21

3.17 4.66

4.18 6.73

4.36 7.69

5.49 10.58

Compound & Simple Interest

We have seen that money invested at Compound Interest i.e. each interest payment is reinvested to earn further interest in future periods. In contrast if no interest is earned on interest the investment only earns Simple Interest. In such a case the investment only grows as follows.

Formula for Simple Interest

Future Value = Present Value [1 + Number of YearsX Interest Rate] For e.g. an investment of Rs. 1000, if Invested at 12% simple interest rate will in 5 years become: 1000 [1 + 5 x 0.12] = Rs. 1600. The illustration in the next slide shows how an investment of Rs. 1000 grows over time under simple interest & compound interest where interest rate is 10%.

Year

Starting Balance

Starting Balance

Interest

Interest

Ending Balance

Ending Balance

SI
1 1000

CI
1000

SI
100

CI
100

SI
1100

SI
1100

1400

1464

100

146

1500

1610

10

1900

2358

100

236

2000

2594

20

2900

6116

100

612

3000

6728

I don't know what the seven wonders of the world are, but I know the eighth Compound Interest. Probably this is the time to use your foresight.
ALBERT EINSTEIN