UNIVERSITY OF

ENGINEERING AND
TECHNOLOGY MARDAN

DEPARTMENT OF COMPUTER
SOFTWARE ENGINEERING

Semester: 8th Batch: 16

 Name
Saad Waseem
Submitted to
Engr. Shaharyar
Roll Number
17MDSWE0668
Class Roll Number
04
Subject
Economics
Assignment
03
 June 6, 2021

Assignment #3
Question
Explain in detail the terms "Present Value" and "Future Value" with relevant
Difference between them through Examples? (CLO 2, PLO 6)
Answer
Present Value
Present value is how much future sum of money is worth today. Present value
provides us with an estimated amount to be spent today to have an investment
worth a certain amount in the future. Present value is also called discounted value
and it is an indicator for investors that the money they will receive today can earn
a return in the future.
Present value also states that unspent money today could lose value in the future
by an implied annual rate due to inflation or the rate of return if the money is
invested. Calculating present value involves assuming that a rate of return could
be earned on the funds over the period.
The formula for calculating Present Value is: PV = CF/ (1+r)n
Where CF is the cash flow, r is the discounted rate of return and n is the number
of periods or year.
Example

Let’s say that you have been promised by someone that he will give you 10,000 Rs
5 year from today and interest rate is 8% so no we want to know what the
present value of 10,000 Rs which you will receive in future so,
PV = 10,000/ (1+0.08)5
PV = 6805.83
So present-day value of Rs 10,000 is Rs 6805.83

Future Value
Future Value is the amount of money which will grow over a period of time with
simple or compounded interest. The future value is important to investors and
financial planners, as they use it to estimate how much an investment made
today will be worth in the future. Knowing the future value enables investors to
make sound investment decisions based on their anticipated needs. The amount
of growth generated by holding a given amount in cash will likely be different
than if that same amount were invested in stocks. So future value basically tells us
how much money you will get in any sort of investment in the coming future.
The formula for calculating Present Value is: FV = PV (1+r)n
Example

Suppose Ram is investing a sum of Rs 3000 in some fixed deposit for one year and
for the same Ram will receive interest with a rate of 7℅. So at the end of year
Ram will receive 3210 Rs that is 3000 Principal plus 210 Rs interest. So we can say
that Rs 3210 is the future value of today’s money that is of Rs 3000.