Changes

When money is borrowed for a period of time, rent (or interest) for the use of the money must be paid in addition to repayment of the amount borrowed. Thus, money has a ''time value.'' In oil and gas property evaluation, two equations with respect to time value are useful: the future value of a lump sum investment and the present value of a lump sum of money received in the future. The concept being applied is one of equivalence, in which the period interest rate is used to calculate this equivalency. In the case when interest is compounded annually, interest earned during each year earns interest in future years. For example, [[cost::1.00 USD]] invested today at 10% interest compounded annually will be worth [[cost::1.10 USD]] a year from now, [[cost::1.21 USD]] two years from now, and [[cost::1.33 USD]] three years from now. Thefollowing equation represents the future value of a lump sum investment compounded annually:

When money is borrowed for a period of time, rent (or interest) for the use of the money must be paid in addition to repayment of the amount borrowed. Thus, money has a ''time value.'' In oil and gas property evaluation, two equations with respect to time value are useful: the future value of a lump sum investment and the present value of a lump sum of money received in the future. The concept being applied is one of equivalence, in which the period interest rate is used to calculate this equivalency. In the case when interest is compounded annually, interest earned during each year earns interest in future years. For example, [[cost::1.00 USD]] invested today at 10% interest compounded annually will be worth [[cost::1.10 USD]] a year from now, [[cost::1.21 USD]] two years from now, and [[cost::1.33 USD]] three years from now. Thefollowing equation represents the future value of a lump sum investment compounded annually:

:<math>\mathbf{Equation}</math>

:<math>\ F = P(1 + i)^t</math>

where

where