1. What is Future Value?

Future Value (FV) is the value of a current asset at a future date based on an assumed rate of growth. It's a fundamental concept in finance that helps investors understand how much an investment made today will grow over time.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( FV \) — Future Value (USD)
• \( PV \) — Present Value (USD)
• \( r \) — Interest rate (decimal)
• \( t \) — Time period (years)

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

3. Importance of Future Value Calculation

Details: Calculating future value helps in financial planning, investment decisions, retirement planning, and comparing different investment opportunities.

4. Using the Calculator

Tips: Enter present value in USD, interest rate as a decimal (e.g., 5% = 0.05), and time period in years. All values must be valid (PV > 0, rate ≥ 0, time ≥ 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 amount, while compound interest is calculated on the principal plus accumulated interest.

Q2: How does compounding frequency affect future value?
A: More frequent compounding (monthly vs. annually) results in higher future values due to interest being calculated on interest more often.

Q3: What are typical uses of future value calculations?
A: Common uses include retirement planning, investment growth projections, loan calculations, and savings goals.

Q4: How does inflation affect future value?
A: Inflation reduces the purchasing power of money over time, so real future value should account for inflation by using a real interest rate.

Q5: Can this formula be used for negative interest rates?
A: Yes, the formula works mathematically with negative rates, though this would represent a decreasing value over time.