An introductory mathematical workbook about present and future value. It is educational material, not personal investment, tax or financial advice, an official CFA resource, or a forecast of returns. The examples use hypothetical fixed rates. Real investments can lose value.
For end-of-period compounding at a constant rate, FV = PV × (1 + r)^n. To discount one future amount, PV = FV / (1 + r)^n. Here r is the rate per period expressed as a decimal; n is the number of those periods. A rate of 5% means r = 0.05. These equations assume no intermediate cash flows and matching dates.
Suppose PV = 1,000, r = 5% per year and n = 2 years. FV = 1,000 × 1.05² = 1,102.50. First-year interest is 50; second-year interest is 52.50. The extra 2.50 is interest on prior interest. This is an arithmetic illustration, not an available product.
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