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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 helps investors understand how much an investment made today will be worth in the future.
The calculator uses the Future Value formula:
Where:
Explanation: The formula calculates how much an initial investment (PV) will grow to after a certain number of periods (n) at a given interest rate (r), accounting for compound interest.
Details: Future Value calculations are essential for financial planning, investment analysis, retirement planning, and comparing different investment opportunities. They help individuals and businesses make informed decisions about long-term financial goals.
Tips: Enter present value in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be valid (PV > 0, rate ≥ 0, periods ≥ 1).
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, leading to exponential growth.
Q2: How often should interest be compounded?
A: The formula assumes compounding occurs once per period. For different compounding frequencies, the rate and periods need to be adjusted accordingly.
Q3: Can this calculator handle negative interest rates?
A: Yes, the calculator can handle negative rates, which would result in a decrease in future value over time.
Q4: What are typical applications of Future Value calculations?
A: Retirement planning, education savings, investment analysis, loan calculations, and any scenario involving time value of money.
Q5: How does inflation affect Future Value?
A: The calculated Future Value is nominal. To get real Future Value, you need to adjust for inflation by using a real interest rate (nominal rate minus inflation rate).