FIRST PRINCIPLES OF VALUATION

FV = P(1+r)t, where t = the number of periods in the future. What is the FV of $500 invested for 2 years at 10%; FV = $500(1.10)2 = $500(1.21) = $605. Note: there are two elements in the $105 interest; There is the interest on the principal; $50 each year (total $100), and. There is the interest on the first year’s interest; $50 x .10 = $5 ................
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