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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 investors understand how much an investment made today will be worth in the future.
The calculator uses the Future Value formula:
Where:
Explanation: The formula calculates compound interest, where the interest earned each period is added to the principal, and subsequent interest is calculated on the new total.
Details: Future Value calculations are essential for financial planning, investment analysis, retirement planning, and comparing different investment opportunities. They help individuals and businesses make informed decisions about saving and investing.
Tips: Enter the present value in dollars, interest rate as a percentage (e.g., 5 for 5%), and the number of periods. All values must be positive numbers.
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 plus accumulated interest.
Q2: How often should interest be compounded?
A: The more frequently interest is compounded, the higher the future value. Common compounding periods include annually, semi-annually, quarterly, monthly, or daily.
Q3: Can this calculator handle different compounding periods?
A: This calculator assumes the interest rate and periods are aligned (e.g., annual rate with years). For different compounding frequencies, adjust the rate and periods accordingly.
Q4: What is the time value of money?
A: The concept that money available today is worth more than the same amount in the future due to its potential earning capacity.
Q5: How does inflation affect future value?
A: Inflation reduces the purchasing power of money over time. The nominal future value should be adjusted for inflation to determine the real future value.