1. What is the Future Value Formula?

The Future Value (FV) formula calculates how much a present sum of money will be worth in the future when invested at a given interest rate. It's a fundamental concept in finance for understanding the time value of money.

2. How Does the Calculator Work?

The calculator uses the Future Value equation:

Where:

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

Explanation: The formula shows how money grows exponentially over time when earning compound interest.

3. Importance of Future Value Calculation

Details: Future Value calculations are essential for investment planning, retirement savings, loan analysis, and comparing different financial options.

4. Using the Calculator

Tips: Enter present value in USD, interest rate as decimal (e.g., 0.05 for 5%), and time in years. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest calculates on principal only, while compound interest includes interest on previously earned interest.

Q2: How often is interest compounded in this formula?
A: This formula assumes annual compounding. For other periods, the formula needs adjustment.

Q3: Can I use this for monthly calculations?
A: Yes, but convert time to years (e.g., 6 months = 0.5 years) and ensure rate matches the period.

Q4: What if my interest rate changes over time?
A: This formula assumes a constant rate. For variable rates, you'd need to calculate each period separately.

Q5: How does inflation affect future value?
A: Future value shows nominal dollars. For real purchasing power, you'd need to adjust for inflation.