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Future Value Formula:
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The Future Value formula calculates how much a present sum of money will be worth in the future when invested at a given interest rate over a specified number of periods. It's a fundamental concept in finance for evaluating investment opportunities and financial planning.
The calculator uses the Future Value formula:
Where:
Explanation: The formula calculates compound interest, where the investment grows exponentially over time as interest is earned on both the principal and accumulated interest.
Details: Future value calculations are essential for investment planning, retirement savings, loan analysis, and comparing different financial opportunities. They help individuals and businesses make informed financial decisions.
Tips: Enter present value in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be valid (PV > 0, r ≥ 0, n ≥ 1).
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 the principal and accumulated interest, leading to exponential growth.
Q2: How does compounding frequency affect future value?
A: More frequent compounding (e.g., monthly vs. annually) results in higher future values because interest is calculated and added to the principal more often.
Q3: Can this formula be used for inflation calculations?
A: Yes, the same formula can be used to calculate how much future money will be worth in today's dollars by using the inflation rate as the interest rate.
Q4: What are the limitations of this calculation?
A: The formula assumes a constant interest rate over the entire period and doesn't account for taxes, fees, or additional contributions/withdrawals.
Q5: How is this different from present value calculations?
A: Future value calculates what money will be worth later, while present value calculates what future money is worth today - they are inverse calculations.