Final answer:
The question deals with the calculation of future value and compound interest for investments compounded monthly. The future value formula is used with the interest rate and time period to calculate the growth of an investment, and compound interest is the difference between the future and present values.
Step-by-step explanation:
The student is asking about the concept of future value in the context of finance, specifically how to calculate it when money is invested at a certain interest rate compounded monthly. The formula for future value (FV) when interest is compounded is given by FV = Principal × (1 + interest rate)time. The present value (PV) can be found from the future value using the regular compound growth formula: PV(1+i)n = FV, where i is the monthly interest rate and n is the number of months.
To calculate compound interest, you subtract the present value from the future value. For example, if a principal amount PV is invested at an interest rate r for t years, compounded monthly, the future value can be calculated and from it, the compound interest is found by the difference: Compound interest = Future Value - Present Value.
To apply this to a real-world scenario, consider a company making payments of $15 million now, $20 million in one year, and $25 million in two years. The future value of these payments can also be calculated using the compound interest formula adjusted for each time period.