
In addition to being able to understand the financial statement, IAs must also have the ability to estimate the value of an investment in the future.
Future Value
When planning investment strategy, it's useful to be able to predict what an investment is likely to be worth in the future, taking the impact of compound interest into account. This formula allows you (or your calculator) to do just that:
P_{n} = P_{0}(1+r)^{n}P_{n}is future value of P_{0}P_{0} is original amount invested r is the rate of interest n is the number of compounding periods (years, months, etc.) 
Note in the example below that when you increase the frequency of compounding, you also increase the future value of your investment.
P_{0} = $10,000
P_{n }is the future value of P_{0} n = 10 years
r = 9%
Example 1 If interest is compounded annually, the future value (P_{n}) is $23,674.
P_{n} = $10,000(1 + .09)^{10} = $23,674
Example 2  If interest is compounded monthly, the future value (P_{n}) is $24,514.
P_{n} = $10,000(1 + .09/12)^{120} = $24,514
Present Value
As part of your investment planning, you might also need to calculate the present value of investments. For example, if your clients want to retire with $1 million in their investment accounts, it would be useful to know how much they need to save each year to reach that goal.
You can simply reverse the future value formula like this:
P_{0 = }P_{n } (1+ r)^{ n} P_{n }= $23,674 P_{0} is the present value of P_{n}n = 10 years r = 9% 
Example: How much would somebody need to invest now if they wish to have $23,674 10 years from now based on a return of 9% compounded annually?
P_{0 }= $23,674 = $10,000
(1+ .09)^{ 10}
Exam Tips and Tricks A typical time value of money question will look something like this: 
 Internal rate of return
 Present value
 Expected return
 Future value
The correct answer is "d"  the ending value of the investment is known as the future value.
P_{n }= $10,000(1+.06/12)^{120 }= $18,194
Rates of Return  Internal Rate of Return
Related Articles

Markets
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Managing Wealth
Learn Simple And Compound Interest
Interest is defined as the cost of borrowing money, and depending on how it is calculated, can be classified as simple interest or compound interest. 
Investing
Understanding The Time Value Of Money
Find out why time really is money by learning to calculate present and future value. 
Investing
Accelerating Returns With Continuous Compounding
Investopedia explains the natural log and exponential functions used to calculate this value. 
Markets
The Effective Annual Interest Rate
The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding. 
Trading
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation. 
Retirement
Why Investors Should Care About Compound Interest
Learn about compounding interest and how it impacts savings decisions, debt management, investment strategies and retirement planning. 
Markets
How does Compound Interest Work?
A quick way to understand the impact of compound interest is to ask yourself if you’d rather receive $100,000 a day for a month, or start with a penny on day one and double it every day for those ... 
Investing
How To Calculate Your Investment Return
How much are your investments actually returning? Find out why the method of calculation matters. 
Investing
What is Present Value?
Present value tells us how much a future sum of money is worth today, given a specified rate of return. This is an important financial concept based on the principle that money received in the ...