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Future Value Formula:
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The Future Value Calculator estimates the value of an investment after a specified period, accounting for compound returns. It helps investors understand how their money can grow over time in the stock market or other investment vehicles.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how an initial investment grows when returns are compounded over multiple periods, demonstrating the power of compound interest in long-term investing.
Details: Understanding future value is crucial for retirement planning, investment strategy development, and setting realistic financial goals. It helps investors make informed decisions about asset allocation and time horizons.
Tips: Enter the initial investment amount in dollars, annual return rate as a percentage, and the number of investment periods. All values must be positive numbers.
Q1: What is compound interest?
A: Compound interest is interest calculated on the initial principal and also on the accumulated interest from previous periods, creating exponential growth over time.
Q2: How often should returns compound?
A: For stock market investments, returns typically compound annually, but this calculator can be adapted for different compounding frequencies by adjusting the rate and periods accordingly.
Q3: What is a realistic annual return rate?
A: Historical stock market returns average 7-10% annually after inflation, but actual returns vary by market conditions, investment strategy, and time period.
Q4: Can this calculator account for regular contributions?
A: This version calculates future value for a single lump sum investment. For regular contributions, a different formula accounting for periodic investments would be needed.
Q5: How does inflation affect future value?
A: This calculator shows nominal future value. For real (inflation-adjusted) value, use a real return rate (nominal return minus inflation rate).