Future Value of Money Calculation –Basic – tutorial video lesson review
Hello and welcome back to MBAbullshit.com.
Our topic for this video is Future Value also known as FV.
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Let’s cut right through the chase.
Okay, now, most professors would start out by teaching the Future Value using this scary
bullshit formula over here.
Now I know it looks scary and intimidating but don’t panic.
I want you to first remove this formula from your brains for now and instead I want you
to listen to a story.
I’m going to tell you a quick story right now, alright.
Now, let’s say that today I give you $200 and you use this $200 and you deposit it in
a bank and the bank will give you a 6% interest rate and you keep your $200 in the bank for
7 years.
The question now is how much will you have after these 7 years?
I think it’s quite easy, well, maybe not yet but I’ll tell you the answer and the
answer is you will have $300.
If you put $200 in a bank for 7 years and you get 6% interest then you will have $300
after that 7 years.
The next question is how did I compute this $300?
Did I just guess it or did I compute it?
The answer is I computed it.
What formula did I use to compute it?
It’s very simple and I use this formula which we already saw in the beginning, alright.
Again, don’t panic.
This is a very simple formula once we cut through the bullshit and I show you how easy
it is.
First of all, going back here, this amount that we’re looking for is actually called
Future Value and is written as FV and this FV is exactly the same as the FV that you
see in the formula up here, okay?
Now something to remember, this FV is only one variable, alright, it is one variable.
You might have learned in your earlier days as a child or in high school that FV means
two variables, F and V and that FV means F multiplied by V, right?
But no, in our case it is just one simple variable.
Now, let’s move on.
This $200 that I’m giving you today is called the Present Value, “present” means today,
$200 is known as the Present Value and it is written as PV.
Again, this is just one variable PV and that is the same variable that you see up there
in the formula as PV.
Next, this interest rate over here is written is 6% and is written as the letter r and that
is the same r that you see up there in the formula.
Next, we know about the number of years, we know its number 7 and the number of years
is written as the letter n, n stands for number and it is the same n that you see up there
in the formula so it’s simple.
Now using this formula up here and using these values over here it’s now very simple to
use these values and to plug them into this formula over here, so, 200 as we know is PV,
it ends up going over here.
The r as we know is 6% and it ends up going over here.
The n as we know is 7 and it ends up going over here.
It looks pretty messy right now but if we write it down neatly and clearly it will look
like this.
So, $200 is the Present Value, .06 means 6%, and number of years was 7 hence it that goes
up here as the exponent value over here.
Now remember 6% is written as .06, it is not written as .6, .6 means 60% but .06 means
6%.
Now using this formula and using these values will come up with a simpler formula looking
like this and in the end we will find our $300.
See, that’s how simple it is.
It was as simple as that using this formula which looks scary but as you see it is actually
very simple.
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will be explained very clearly.
I hope you learned a lot from this and I hope you have enjoyed the video.
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alright.
Goodbye.
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