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Future Value Formula:
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Future Value (FV) is the value of a current asset at a specified date in the future based on an assumed rate of growth over time. It's a fundamental concept in finance that helps in investment planning and decision making.
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: Calculating future value helps investors understand how much an investment made today will grow to in the future, enabling better financial planning and comparison between investment options.
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 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 (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: Retirement planning, investment analysis, loan amortization, and comparing different investment options.
Q4: Can this formula be used for inflation calculations?
A: Yes, you can use it to calculate how inflation will reduce purchasing power by using inflation rate as the interest rate.
Q5: How accurate are future value projections?
A: They're mathematical projections assuming constant rates. Actual results may vary due to changing rates, additional contributions, or withdrawals.