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FV—Future Value
of 8 percent per year on similar investments (you may want to call in opportunity
cost), how much should you be willing to pay for this annuity? This is an example of
when you will be using the PV function. As you can see in Figure 31.3, the present
value of the investment is \$41,210.74. This is the amount you should be willing to
pay today to secure the future return at the specified rate.
FV—Future Value
Future Value is the value of an investment based on periodic, constant payments, and
a constant interest rate. Suppose that you will be paying \$500 every month, for 10
years, at a rate of 8 percent, and then receiving a lump sum back immediately after
paying the last payment. How much would you have to get in the future? This is an
example of when you will be using the FV function. As you can see in Figure 31.4 you
will have to pay \$91,473.02.
NPER—Number of Periods
Consider, for example, that you are about to retire. You have a sum of \$800,000
available in your savings (the amount that you will be drawing on for the rest of your
FIGURE 31.3 The Present Value (PV) Function
FIGURE 31.4 The Future Value (FV) Function
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