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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. It is a fundamental concept in finance that helps investors understand how much an investment made today will be worth in the future.
The calculator uses the basic future value formula:
Where:
Explanation: The formula calculates how much an investment will grow over time when compounded at a specific interest rate for a given number of periods.
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 saving and investing.
Tips: Enter the present value in dollars, interest rate as a percentage, and the number of periods. All values must be positive numbers (present value > 0, interest rate ≥ 0, periods ≥ 1).
Q1: What is 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 does compounding frequency affect future value?
A: More frequent compounding (monthly vs. annually) results in higher future values due to interest being calculated on accumulated interest more often.
Q3: What is a typical period for future value calculations?
A: Periods can be years, months, or any time unit, but the interest rate must match the period (annual rate for years, monthly rate for months).
Q4: Can future value be negative?
A: No, future value represents the worth of an investment and should always be a positive number when using this basic formula.
Q5: How accurate are future value calculations?
A: They provide mathematical projections based on constant growth rates, but actual results may vary due to market fluctuations and changing interest rates.