1. What is the Future Value Formula?

The Future Value (FV) formula calculates how much an investment made today (P) will be worth in the future (n years) at a given interest rate (r). It's a fundamental concept in finance for understanding how money grows over time.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( P \) — Principal amount (initial investment)
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of years the money is invested

Explanation: The formula accounts for compound interest, where each year's interest is added to the principal for the next year's calculation.

3. Importance of Investment Calculation

Details: Understanding future value helps in financial planning, comparing investment options, and setting realistic financial goals.

4. Using the Calculator

Tips: Enter principal amount in USD, annual interest rate as a decimal (e.g., 0.05 for 5%), and number of years. All values must be valid (P > 0, r ≥ 0, n > 0).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on the principal plus accumulated interest.

Q2: How often is interest compounded in this calculator?
A: This calculator assumes annual compounding. For different compounding periods, the formula would need adjustment.

Q3: What are typical interest rates for investments?
A: Rates vary widely: savings accounts (~0.5-2%), bonds (~2-5%), stocks (~7-10% historically), but past performance doesn't guarantee future results.

Q4: How does inflation affect future value?
A: The nominal future value doesn't account for inflation. For real value, subtract expected inflation from the interest rate.

Q5: Can this calculator handle regular contributions?
A: No, this calculates one-time investments. For regular contributions, you'd need the future value of an annuity formula.