Terminal value (finance)

The final value (also final reading,. Engl terminal value) is a term used in the financial industry.

Background

The final value of cash receipts and payments is the value that results from compounding. With its help can be found, which value one or more paid during an observation period payments at the end. The opposite of the final value is the present value. Thus, the final value of deposits and withdrawals describes the amount the investor in the implementation of the investment at the end ( t = T) has more available.

With a single payment, the final value obtained by multiplying the value with the compounding factor that can be taken from actuarial tables.

When multiple equally high payments at the end of each year of the period in the present value is obtained by multiplying the value of the payment with the Endwertfaktor that can be taken from actuarial tables.

One of the most frequently used models for the calculation of the final value is the Gordon Growth Model.

Example

On a 6% interest-bearing account are currently € 5,000. Which FS is available in five years?

Building on previous example in one, two and three years of € 1,000 each are lifted. Which final value be in five years then available?

Where:

• EWT = final value of the investment, measured at time T
• K0 = height of the initial payment at the time 0
• T = cycle index (t = 1, ..., T)
• Q = rate of return of the investment