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Future Value Formula:
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Future Value (FV) calculation determines how much a current investment or principal amount will grow over time when earning compound interest. It's a fundamental concept in finance for investment planning and wealth accumulation.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how money grows over time through the power of compound interest, where interest earned each period is added to the principal for the next period's interest calculation.
Details: Understanding future value is crucial for financial planning, retirement savings, investment decisions, and comparing different investment opportunities. It helps individuals and businesses make informed decisions about long-term financial goals.
Tips: Enter principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be valid (principal > 0, rate ≥ 0, time ≥ 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 both principal and 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, the formula would need adjustment.
Q3: Can I use this for monthly investments?
A: This calculator is for single lump-sum investments. For regular contributions, you would need the future value of annuity formula.
Q4: What if the interest rate changes over time?
A: This calculator assumes a constant interest rate. For variable rates, the calculation would need to be done in segments.
Q5: How accurate is this calculation for real-world investments?
A: While mathematically accurate, real-world returns may vary due to fees, taxes, inflation, and market fluctuations.