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Understanding Future Value: Essential Analytical Methods for Lawyers in Finance

This document explores critical financial concepts relevant to lawyers, focusing on the time value of money and future value calculations. It illustrates the principle of compound interest with practical examples, comparing immediate and delayed cash offers. The text emphasizes analytical methods to evaluate investments like zero-coupon bonds and annuities, providing insights into determining better financial options. With a clear formula for future value (FV = PV * (1 + i)^n), it serves as a guide for legal professionals in assessing financial implications in law and valuation.

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Understanding Future Value: Essential Analytical Methods for Lawyers in Finance

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  1. Analytical Methodsfor Lawyers (Finance) Future value [last updated 6 Apr 09]

  2. “The most powerful force in the universe is compound interest”.

  3. Value of $1000?

  4. I offer you either $500 today or $800 in three years. Which is better?

  5. Time value of money

  6. Time value of money $800 in 3 years > $500 today (assuming a 10% rate for money)

  7. Time value of money

  8. Time value of money $500 today > $800 in 3 years (assuming a 20% rate for money)

  9. Time value of money $500 * (1+ .20)3 = $864

  10. Future value FV = PV * (1+ i)n 7 6 FV 5 4 3 2 0 1 PV

  11. Which is better investment?

  12. Example How much would a 5-year zero coupon bond face amount $10,000 at 2.5% interest (compounded annually) pay at maturity? Solution

  13. What is FV ofdollar cost averaging? (an annuity - $5,000 for 10 years @ 7%) Law & Valuation 1.2.3 “Future value of annuity”

  14. The end

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