Present value vs future value
An example of how to calculate Future Value.
How much money will I have two years from now if I invest $100 at an expected 20% annual return?
Start with $100 today. $100 multiplied by 1.2 is $120. This $120 in turn multiplied by 1.2 is $144.
An example of how to calculate Present Value.
How much money do I invest today to have $144 two years from now at an expected 20% annual return?
Start with $144 in the future. $144 divided by 1.2 is $120. Then divide the $120 once again by 1.2 to get to $100 today.
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