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Glossary
Predicting the Future (Future Value, That Is)

Future Value

"Future Value." That may not be a term you are familiar with. Let's look at a definition of future value.

Future value is the value of an asset or cash at a specified date in the future that is equal in value to a specified sum today.

What? Yes, that definition is a mouthful and likely doesn't make future value any clearer; however, it's not nearly as difficult as it may seem. You may recall, in the inflation lesson, we discussed the following: if you make and spend $1,000 this year, and the rate of inflation is 3%, then next year you need to make $1,030 to purchase the same amount of "stuff." There's a special term for that $1,030, and it's called future value. Let's again look at the definition of future value; this time in the context of our $1,000 example:

Future value is the value of an asset or cash ($1,030) at a specified date in the future (next year) that is equal in value to a specified sum today ($1,000).

In this scenario, our $1,000 today has a future (one year from now) value of $1,030. It makes a little more sense once you put it in context! Of course, $1,000 is just an example and does not mean that at any point in time $1,000 will always have a future value of $1,030. The future value of any specified sum of money depends on the amount of money you are starting with today, the span of time that defines the future date, inflation and current interest rates.

And that's what this lesson is about. By the end of this lesson, you'll be able to calculate the future value of any sum of money for any period of time in the future! Awesome, right? Let's get started on those calculations. Click Proceed to the next page to begin.