Future Value (FV)
Future value is the value to which a payment or series of payments will grow by a stated future date, assuming rate of growth over time. We often need to determine a future value for a variety of assets that are currently available in the market.
The following facts are important when the present value and the future value are separated in time:
• The amounts of money can only be accumulated if those are indexed at the same point in time.
• The future value will increase with the number of periods, for a given interest rate.
• The future value will increase with the interest rate, for a given number of periods.
Future value is usually used for the following scenarios:
Future value of a lump-sum with compounding
Future value of a lump-sum with discrete compounding
Future value of a lump-sum with continuous compounding
Future value of a series of equal cash flows-Ordinary Annuity
Future value of a series of equal cash flows-Annuity Due
Future value of a series of unequal cash flows
We can find a portfolio’s variance as a straightforward function of the variances and correlations of the component securities. There is no similar procedure for semivariance (semideviation). We also cannot take the derivative of semivariance (semideviation).