1. What is Future Value?

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 used to estimate how much an investment made today will be worth in the future.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

Where:

• \( FV \) — Future Value (currency)
• \( PV \) — Present Value (currency)
• \( r \) — Interest Rate (decimal)
• \( n \) — Number of Periods

Explanation: The formula calculates how much an initial investment will grow over time when interest is compounded. Each period, the investment earns interest on both the principal and accumulated interest.

3. Importance of Future Value Calculation

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.

4. Using the Calculator

Tips: Enter present value in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and 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 principal and 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 because interest is calculated and added to the principal more often.

Q3: Can this calculator be used for different time periods?
A: Yes, the periods can represent years, months, or any consistent time unit as long as the interest rate matches the period (annual rate for years, monthly rate for months).

Q4: What is the rule of 72?
A: The rule of 72 estimates how long it takes for an investment to double: 72 divided by the annual interest rate gives the approximate number of years.

Q5: How accurate are future value calculations?
A: They provide mathematical projections based on constant rates, but actual returns may vary due to market fluctuations, changing interest rates, and other economic factors.