Business and Personal Finance © 2007

Chapter 1: Personal Financial Planning

S&P's Financial Focus

The Future Value of Money

You make choices about money all the time. You decide whether you will save $100 or spend it on a new jacket. Before you spend money, you may want to consider its time value.

The time value of money is the increase of money you save as a result of interest or dividends earned. Future value is the amount that your original deposit will be worth based on the interest you earn over a specific time. You can calculate the future value of a single deposit over a one-year period by multiplying the principal, or the amount of money of your original deposit, by the annual interest rate, and then adding that amount onto the principal.

Calculate Future Value You decide to put $2,000 into a savings account with an annual interest rate of 5 percent. At the end of 12 months, what is the future value of your $2,000?

[Answer: $2,100]

Standard and Poor’s publishes the globally recognized S&P 500® financial index and provides credit ratings. It also gathers financial statistics, information, and news, and analyzes this data to help individuals, companies, and governments make financial decisions. Go to www.standardandpoors.com to learn more about this company.

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