1. What Is The Future Value Formula?

The Future Value formula calculates how much an initial investment will grow over time with compound interest. It's a fundamental concept in finance that helps investors understand the potential growth of their money.

2. How Does The Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( Initial \) — Initial investment amount
• \( Rate \) — Interest rate per period (as a decimal)
• \( Periods \) — Number of compounding periods

Explanation: The formula accounts for compound interest, where each period's interest is added to the principal, resulting in exponential growth over time.

3. Importance Of Future Value Calculation

Details: Understanding future value is crucial for financial planning, retirement savings, investment decisions, and comparing different investment opportunities.

4. Using The Calculator

Tips: Enter the initial investment amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and the number of compounding periods. All values must be positive.

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.

Q2: How often should interest be compounded?
A: More frequent compounding (daily vs. annually) results in higher returns due to the compounding effect.

Q3: Can this calculator handle different compounding frequencies?
A: This calculator assumes the rate and periods match (e.g., annual rate with years). For different frequencies, adjust the rate and periods accordingly.

Q4: What if I make regular contributions?
A: This calculator calculates future value for a single lump sum. Different formulas are needed for regular contributions.

Q5: How does inflation affect future value?
A: The calculated future value is nominal. For real value, subtract expected inflation from the interest rate.