How to Calculate Future Value and Present Value of an Appreciating Asset


In an earlier post, I defined what future value and what present value is. In this post, I’m going to go through some of the mathematics of how you can calculate those values.

How to Calculate Future Value

The future value of an appreciating asset is the current value multiplied by (1+the annual growth rate)number of years. For example, let’s say we have an asset that is currently worth one hundred dollars. The growth rate is 5% per year. In one year, the future value would be 100 * (1+.05) or 105 dollars. To calculate the value in 2 years you would multiply that 105 by another (1+.05) to get 110.25 dollars. Thus future value is always the current value multiplied by (1+growth rate per year)number of years. So in 100 years the value of the asset would be 100 * 1.05100 or 13,150.13 dollars.

How to Calculate Present Value

To calculate present value, you simply run the future value equation in reverse. We know future value is always the current value multiplied by (1+growth rate per year)number of years. If we know the future value, the annual growth rate, and the number of years, we can algebraically solve the equation to find out the current value. For example: let’s say an asset is worth 500 dollars in 30 years. The asset appreciates at 10 percent per year. To find the current value you would plug those numbers into the above equation. 500 = Current Value * 1.130. Current value is thus 28.65 dollars. The equation (rearranged) is current value = future value / ((1+annual growth rate)number of years).

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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