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Future Value Formula:
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The Future Value formula calculates how much a current savings amount (principal) will grow to over time with compound interest. It accounts for the principal amount, interest rate, compounding frequency, and time period.
The calculator uses the Future Value formula:
Where:
Explanation: The formula calculates how much an initial investment will grow based on compound interest, where interest is earned on both the principal and accumulated interest.
Details: Understanding future value helps in financial planning, retirement savings calculations, and investment decision making. It shows the power of compound interest over time.
Tips: Enter principal amount in dollars, annual interest rate as a percentage, 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.
Q2: How does compounding frequency affect future value?
A: More frequent compounding (higher n) results in higher future value because interest is calculated and added more often.
Q3: What is a typical compounding frequency for savings accounts?
A: Most savings accounts compound interest daily or monthly, though this can vary by financial institution.
Q4: Can this formula be used for investments other than savings accounts?
A: Yes, this formula can be applied to any investment that earns compound interest, including certificates of deposit and certain types of bonds.
Q5: How does time affect future value?
A: The longer the time period, the greater the effect of compound interest, making time a crucial factor in investment growth.