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Future Value Formula:
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The Future Value Calculator estimates the future worth of an investment based on compound interest. It helps individuals and investors plan their savings and understand how money grows over time with regular compounding.
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: Understanding future value is crucial for retirement planning, investment decisions, and achieving long-term financial goals. It helps compare different investment options and make informed financial choices.
Tips: Enter the 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 numbers.
Q1: What's the difference between APR and APY?
A: APR (Annual Percentage Rate) doesn't account for compounding, while APY (Annual Percentage Yield) does. This calculator uses APR with compounding frequency.
Q2: How does compounding frequency affect returns?
A: More frequent compounding (daily vs. annually) results in higher returns due to interest being calculated more often on accumulated interest.
Q3: What are common compounding periods?
A: Common periods include annually (1), semi-annually (2), quarterly (4), monthly (12), and daily (365).
Q4: Can I use this for regular contributions?
A: This calculator is for lump-sum investments. For regular contributions, you would need an annuity future value formula.
Q5: Is this adjusted for inflation?
A: No, this calculates nominal future value. For real returns, subtract expected inflation from the interest rate.