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Future Value Formula:
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The Future Value (FV) formula calculates how much an investment made today (present value) will grow to at a future date, given a specified interest rate and time period. It's fundamental in finance for evaluating investment opportunities and comparing different financial scenarios.
The calculator uses the Future Value formula:
Where:
Explanation: The formula accounts for compound interest, where interest earned each period is added to the principal for the next period's interest calculation.
Details: Future Value calculations help investors understand the potential growth of their investments, compare different investment options, and plan for financial goals like retirement or education funding.
Tips: Enter present value in USD, interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. All values must be positive numbers.
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 (e.g., monthly vs. annually) results in higher future values due to interest being calculated more often.
Q3: What's a typical range for interest rates?
A: Rates vary widely - savings accounts might offer 0.5%-2%, bonds 2%-5%, and stocks historically average 7%-10% annually.
Q4: Can this formula be used for inflation calculations?
A: Yes, you can use it to see how inflation reduces purchasing power by using the inflation rate as the interest rate.
Q5: How accurate are future value projections?
A: They're mathematical projections assuming constant rates. Actual returns may vary due to market fluctuations and changing rates.