No.33

Present Value

So $1,000 now is the same as $1,100 next year (at 10% interest).

We say the Present Value of $1,100 next year is $1,000

Because we could turn $1,000 into $1,100 (if we could earn 10% interest).

Now let us extend this idea further into the future ...

How to Calculate Future Payments

Let us stay with 10% Interest. That means that money grows by 10% every year, like this:

So:

• $1,100 next year is the same as $1,000 now.
• And $1,210 in 2 years is the same as $1,000 now.
• etc

In fact all those amounts are the same (considering when they occur and the 10% interest).