framtíðarverðmæti

Framtíðarverðmæti is an Icelandic term that translates to "future value" in English. It refers to the value of a current asset or sum of money at a specified date in the future, based on an assumed rate of growth. This concept is fundamental in finance and economics, particularly in areas like investment, savings, and loan calculations.

The calculation of future value takes into account the time value of money, which posits that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This earning capacity is often expressed as an interest rate or a rate of return. The formula for future value typically involves the present value of the money, the interest rate, and the number of periods over which the money will grow.

For example, if an individual invests 100,000 Icelandic krónur today at an annual interest rate of 5%, the future value of that investment after one year would be 105,000 krónur. If the investment horizon is longer, the future value will be higher due to compounding, where interest earned in one period also earns interest in subsequent periods.

Understanding framtíðarverðmæti is crucial for making informed financial decisions. It helps individuals and businesses project the potential growth of their investments, assess the long-term cost of borrowing, and plan for future financial goals such as retirement or major purchases. Financial institutions widely use this concept in pricing financial products and evaluating investment opportunities.