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Future Value Formula:
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The Future Value formula calculates how much a current savings amount will grow to over time with compound interest. It's essential for financial planning and investment analysis.
The calculator uses the compound interest formula:
Where:
Explanation: The formula accounts for compound interest, where interest is earned on both the initial principal and accumulated interest from previous periods.
Details: Calculating future value helps individuals and businesses plan for financial goals, compare investment options, and understand the power of compound interest over time.
Tips: Enter principal amount in dollars, 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.
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.
Q2: How does compounding frequency affect future value?
A: More frequent compounding (higher n) results in higher future values due to interest being calculated and added more often.
Q3: What is a typical compounding frequency?
A: Common frequencies include annually (1), semi-annually (2), quarterly (4), monthly (12), and daily (365).
Q4: Can this formula be used for different currencies?
A: Yes, the formula works with any currency as long as all monetary values use the same currency unit.
Q5: How accurate is this calculation for real-world scenarios?
A: This provides a mathematical estimate. Real-world results may vary due to changing interest rates, fees, or other account terms.