1. What is Future Value Calculation?

The future value calculation determines how much an investment made today will grow to at a specific interest rate over a certain period of time. It's a fundamental concept in finance that helps in investment planning and decision making.

2. How Does the Calculator Work?

The calculator uses the future value formula:

Where:

• \( FV \) — Future value of the investment
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal)
• \( t \) — Time in years

Explanation: The formula accounts for compound interest, where interest earned each period is added to the principal for the next period's interest calculation.

3. Importance of Future Value

Details: Understanding future value helps in financial planning, comparing investment options, and setting realistic savings goals. It demonstrates the power of compounding over time.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a decimal (e.g., 0.05 for 5%), and time period in years. 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, while compound interest is calculated on the principal plus accumulated interest.

Q2: How often is interest compounded in this calculator?
A: This calculator assumes annual compounding. For different compounding periods, the formula would need adjustment.

Q3: What's a typical interest rate for investments?
A: Rates vary widely. Savings accounts might offer 0.5-2%, bonds 2-5%, and stocks historically average 7-10% annually.

Q4: How does inflation affect future value?
A: The nominal future value doesn't account for inflation. For real value, subtract expected inflation from the interest rate.

Q5: Can I calculate how much to invest to reach a goal?
A: Yes, by rearranging the formula: \( P = FV / (1 + r)^t \). This is called present value calculation.