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Future Value Formula:
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Future Value calculation determines how much a present sum of money will grow over time when invested at a specific interest rate. It helps in financial planning and investment decision-making by projecting the growth of funds through compound interest.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how money grows exponentially over time due to compound interest, where interest earned each period is added to the principal for the next period's interest calculation.
Details: Understanding future value is essential for retirement planning, investment analysis, loan calculations, and making informed financial decisions about savings and investments.
Tips: Enter present value in dollars, annual interest rate as a percentage (e.g., 5 for 5%), and number of years. All values must be valid (PV > 0, rate ≥ 0, years ≥ 0).
Q1: What is the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus accumulated interest, leading to exponential growth.
Q2: How often is interest compounded in this calculator?
A: This calculator assumes annual compounding. For more frequent compounding (monthly, quarterly), the formula would need adjustment.
Q3: Can this calculator account for additional contributions?
A: No, this calculates future value for a single lump sum investment. For regular contributions, an annuity formula would be needed.
Q4: What is a realistic interest rate for long-term investments?
A: Historically, stock market returns average 7-10% annually, while bonds average 3-5%. The actual rate depends on investment type and risk tolerance.
Q5: How does inflation affect future value calculations?
A: Future value shows nominal growth. To understand purchasing power, subtract expected inflation from the interest rate to get real returns.