Analytical Methods for Lawyers (Finance) Future value [last updated 6 Apr 09] The most powerful force in the universe is compound interest. Value of $1000? I offer you either $500 today or $800 in three years. Which is better? Time value of money Invest $50010%Balance Year 1 Year 2 Year 3 $50.00 $55.00 $60.50 $ $ $665.50 Time value of money Invest $50010%Balance Year 1 Year 2 Year 3 $50.00 $55.00 $60.50 $ $ $ $800 in 3 years > $500 today (assuming a 10% rate for money) Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $ $ $ $ $ $864.00 Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $ $ $ $ $ $ $500 today > $800 in 3 years (assuming a 20% rate for money) Time value of money Invest $50020%Balance Year 1 Year 2 Year 3 $ $ $ $ $ $ $500 * (1+.20) 3 = $864 Future value FV = PV * (1+ i) n PV FV Which is better investment? Example How much would a 5-year zero coupon bond face amount $10,000 at 2.5% interest (compounded annually) pay at maturity? Solution What is FV of dollar cost averaging? (an annuity - $5,000 for 10 7%) Law & Valuation Future value of annuity The end