1. What is Future Value?

Future Value (FV) is the value of a current asset at a specified date in the future based on an assumed rate of growth. 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 (USD)
• \( PV \) — Present Value (USD)
• \( r \) — Rate per period (decimal)
• \( n \) — Number of periods (unitless)

Explanation: The formula accounts for compound growth of an investment over time.

3. Importance of Future Value Calculation

Details: Calculating future value helps investors understand how much an investment made today will grow to in the future, considering compound interest. This is crucial for retirement planning, investment decisions, and loan analysis.

4. Using the Calculator

Tips: Enter present value in USD, rate per period as a decimal (e.g., 0.05 for 5%), and number of periods. All values must be valid (PV > 0, rate ≥ 0, periods ≥ 1).

5. Frequently Asked Questions (FAQ)

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 the principal plus accumulated interest.

Q2: How often should compounding occur?
A: The more frequent the compounding, the greater the future value. Common compounding periods are annually, semi-annually, quarterly, or monthly.

Q3: What is a typical rate of return?
A: This varies by investment type. Stocks average 7-10% annually, bonds 3-5%, savings accounts 1-2% (historically).

Q4: Can this formula be used for inflation calculations?
A: Yes, you can use it to see how inflation erodes purchasing power by using inflation rate as 'r'.

Q5: How does time affect future value?
A: The longer the time period, the greater the effect of compounding, making time a powerful factor in investment growth.