Final value

The final value is a term used in finance .

backgrounds

The final value of deposits and withdrawals is the value that results from compounding . It can be used to determine the value of one or more payments made during a period under review at the end of the period. The opposite of the final value is the present value . Thus, the final value of deposits and withdrawals describes the amount that the investor has at the end of the investment (t = T).

In the case of a one-off payment, the final value is calculated by multiplying the fair value by the compounding factor, which can be taken from financial mathematical tables.

In the case of multiple equal payments at the end of each year of the observation period, the present value is obtained by multiplying the fair value of the payment by the final value factor, which can be taken from financial mathematical tables.

One of the most widely used models for calculating the final value is the Gordon Growth Model .

example

There is currently € 5,000 in an account with 6% interest. Which final value will be available in five years?

{\ displaystyle EW_ {T} = K_ {0} \ cdot q ^ {T} = 5,000 \ cdot 1 {,} 06 ^ {5} = 6,691 {,} 13}

Building on the previous example, € 1,000 will be withdrawn in one, two and three years. Which final value will be available in five years?

{\ displaystyle EW = 5,000 \ cdot 1 {,} 06 ^ {5} -1,000 \ cdot (1 {,} 06 ^ {4} +1 {,} 06 ^ {3} +1 {,} 06 ^ {2 }) = 3.114 {,} 03}

,

in which:

${\ displaystyle EW_ {T}}$ the final value of the investment, measured at the time , ${\ displaystyle T}$
${\ displaystyle K_ {0}}$ the amount of the initial payment at time 0,
${\ displaystyle t}$ the period index ( ) and ${\ displaystyle t = 1, \ dotsc, T}$
${\ displaystyle q}$ is the interest factor of the investment.

Final value

backgrounds

example

See also