## Basic Compound Interest Formulas

**The future value compounding formula**- shows what an investment would be after a certain period (in the future) compounded at a specific rate:

**FV = PV(1+i)**

^{n}FV - future value

PV - present value

i - interest rate

Exampe: The future value of $100 dollas at 10% annual interest rate after 5 years would be:

FV=100(1+0.10)

^{5}= 100*1.61051 = $161,05

You can easily calculate the future value of and investment with our compound interest calculator

**The present value compounding formula -**- shows the present value of a future amount of money.

**PV = FV/(1+i)**

^{n}where

FV - future value

PV - present value

i - interest rate

You can check THIS more detailed explanation of the matter. Now let's see a simple example:

__Example:__John wants to pay me $1000 after 3 years, if I gave him $800 today. Would it be beneficial for me, if I can receive 7% interest on my money in the bank?

To solve this, we should see what would be the present value of the future payment of $1000 dollars, and see if it is greater than $800. Is so, we will make a profit lending to John.

PV = 1000/(1+0.07)

^{3}= 1000 / 1.225043 = 816.2978768909

So the future value is greater than the amount I would give to John with $16.28 . This will be my profit if I lens him.

You can read a lot on the matter here.

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