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Compound Interest Formula:
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The lump sum payment with compound interest calculates the future value of a single investment based on compound interest principles. It shows how a one-time investment grows over time when interest is compounded periodically.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how a single investment grows when interest is compounded at regular intervals, taking into account the effect of compounding on the investment's growth over time.
Details: Calculating future value is essential for financial planning, investment analysis, retirement planning, and understanding how money grows over time through the power of compound interest.
Tips: Enter the lump sum amount in currency, annual interest rate as a decimal (e.g., 0.05 for 5%), number of compounding periods per year, and time in years. All values must be positive numbers.
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 does compounding frequency affect the result?
A: More frequent compounding (higher n value) results in higher future value due to interest being calculated and added to the principal more often.
Q3: Can this calculator be used for different currencies?
A: Yes, the calculator works with any currency as long as you maintain consistency in the currency unit for both principal and future value.
Q4: What is the rule of 72 in compound interest?
A: The rule of 72 estimates how long it takes for an investment to double by dividing 72 by the annual interest rate (as a percentage).
Q5: Are there limitations to this calculation?
A: This calculation assumes a fixed interest rate and regular compounding periods. It doesn't account for taxes, fees, or changing interest rates over time.