1. What is Compound Interest?

Compound interest is the addition of interest to the principal sum of a loan or deposit, where the interest that has been added also earns interest. This differs from simple interest, where interest is not compounded.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future value of the investment
• \( PV \) — Present value or initial amount
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of times interest is compounded per year
• \( t \) — Time the money is invested for (in years)

Explanation: The formula accounts for the exponential growth of money due to compounding effects over time.

3. Importance of Future Value Calculation

Details: Calculating future value helps in financial planning, understanding investment growth, and comparing different investment options.

4. Using the Calculator

Tips: Enter present value in USD, interest rate as decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between compound and simple 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 results?
A: More frequent compounding leads to higher returns due to the compounding effect. Daily compounding yields more than annual compounding.

Q3: What are typical compounding periods?
A: Common periods are annually (1), semi-annually (2), quarterly (4), monthly (12), or daily (365).

Q4: Can this calculator be used for loans?
A: Yes, it works for both investments and loans, though for loans you'd be calculating the total amount to be repaid.

Q5: How accurate is this calculator?
A: It provides precise mathematical calculations, but actual returns may vary due to changing rates, fees, or other factors.