For example, regarding the homebuyer above trying to save $100,000, that person can calculate the future value of their savings using their estimated monthly savings, estimated interest rate, and estimated savings period. Because it is heavily reliant on estimates, anyone can use future value in hypothetical situations. Future value does not require sophisticated or real numbers. The only way an investor will know which investment may make more money is by calculating the future values and comparing the results. The other requires a $3,000 investment that will return 5% in year one, 10% in year 2, and 35% in year 3. One requires a $5,000 investment that will return 10% for the next 3 years. Let's say an investor is comparing two investment options. For example, a homebuyer attempting to save $100,000 for a down payment can calculate how long it will take to reach this savings by using future value. By combining this information, people can plan for the future as they understand their financial position.
A company or investor may know what they have today, and they may be able to input some assumptions about what will happen in the future.
