1. What is Future Value Calculation?

Future Value (FV) calculation determines how much a current amount of money will be worth at a future date when invested at a specific interest rate. It's a fundamental concept in finance that helps with investment planning and financial decision-making.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( FV \) — Future Value (the amount you'll have in the future)
• \( PV \) — Present Value (the amount you invest today)
• \( r \) — Interest Rate per period (as a decimal)
• \( n \) — Number of compounding periods

Explanation: The formula calculates how money grows over time through compound interest, where you earn interest on both your initial investment and accumulated interest.

3. Importance of Future Value Calculation

Details: Understanding future value helps individuals and businesses make informed financial decisions about investments, retirement planning, savings goals, and comparing different investment opportunities.

4. Using the Calculator

Tips: Enter the present value in dollars, interest rate as a percentage (e.g., enter 5 for 5%), and the number of compounding periods. 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 both the principal and accumulated interest, leading to exponential growth.

Q2: How often should interest be compounded?
A: The more frequently interest is compounded (daily, monthly, quarterly), the faster your money grows. This calculator assumes compounding occurs once per period.

Q3: Can this calculator handle different compounding frequencies?
A: This basic version assumes one compounding period per time unit. For different frequencies, you would need to adjust the rate and periods accordingly.

Q4: What if I make regular contributions?
A: This calculator assumes a single lump sum investment. For regular contributions, you would need a future value of annuity calculation.

Q5: How does inflation affect future value?
A: The calculated future value is a nominal amount. To understand purchasing power, you should subtract expected inflation from the interest rate to get the real rate of return.