Formula and Use
The future value of a lump sum formula shows what a cash lump sum received today will be worth in the future.
The formula compounds the value of a lump sum at the start of period 1 (present value), forward to its value at the end of period n (future value).
The Excel FV function can be used instead of the future value of a lump sum formula, and has the syntax shown below.
FV(i, n, pmt, PV, type)
*The pmt and type arguments are not used when calculating the future value of a lump sum.
Future Value of a Lump Sum Formula Example
If a lump sum of 15,000 is received at the start of period 1, and the discount rate is 5%, then the value of the lump sum at the end of period 10 is given by the future value of a lump sum formula as follows:
FV = PV x (1 + i)n FV = 15,000 x (1 + 5%)10 FV = 24,433.42
The same answer can be obtained using the future value formula in Excel as follows:
FV = -FV(i,n,,PV) FV = -FV(5%,10,,15000) FV = 24,433.42
The future value of a lump sum formula is one of many used in time value of money calculations, discover another at the link below.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.