1. What is Future Value of a Lump Sum?

The Future Value (FV) of a lump sum calculates how much a current amount of money (Present Value) will grow over time when invested at a specific 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 formula:

Where:

• \( FV \) — Future Value
• \( PV \) — Present Value (initial investment)
• \( r \) — Interest rate per period (in decimal)
• \( t \) — Number of periods (years)

Explanation: The formula accounts for compound interest, where interest is earned on both the initial principal and the accumulated interest from previous periods.

3. Importance of Future Value Calculation

Details: Understanding 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 in years. All values must be positive numbers.

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

Q3: What's a typical interest rate for investments?
A: It varies widely - savings accounts might offer 0.5%-2%, bonds 3%-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 calculations?
A: They're mathematically precise for given inputs, but actual investment returns will vary due to market fluctuations.