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Future Value Formula:
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Future Value (FV) is the value of a current asset at a specified date in the future based on an assumed rate of growth over time. It's a fundamental concept in finance that helps in investment planning and comparing different investment options.
The calculator uses the Future Value formula:
Where:
Explanation: The formula accounts for compound interest growth over time, showing how money grows when interest is earned on both the initial principal and accumulated interest.
Details: Calculating future value helps in financial planning, retirement planning, investment decisions, and understanding the time value of money. It shows how investments grow over time with compound interest.
Tips: Enter present value in USD, interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be valid (PV > 0, i ≥ 0, t ≥ 0).
Q1: What's 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 and accumulated interest.
Q2: How does compounding frequency affect future value?
A: More frequent compounding (monthly vs annually) results in higher future values due to interest being calculated on interest more often.
Q3: What is the Rule of 72?
A: A quick way to estimate how long it takes for an investment to double: 72 divided by the interest rate (as percentage) gives approximate years.
Q4: How does inflation affect future value?
A: Inflation reduces the purchasing power of future money. Real return should account for inflation by subtracting inflation rate from nominal interest rate.
Q5: Can this formula be used for monthly contributions?
A: No, this is for lump sum investments. Future value of regular contributions requires a different formula accounting for periodic payments.