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Future Value Formula:
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The Time Value of Money (TVM) concept states that money available now is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
The calculator uses the Future Value formula:
Where:
Explanation: The formula accounts for compound interest, where interest is earned on both the initial principal and the accumulated interest from previous periods.
Details: Calculating future value helps in financial planning, investment decisions, retirement planning, and comparing different investment opportunities. It's fundamental to understanding how investments grow over time.
Tips: Enter present value in dollars, interest rate as a percentage (e.g., 5 for 5%), and number of periods. All values must be valid (PV > 0, Rate ≥ 0, periods ≥ 1).
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: This calculator assumes compounding occurs once per period. For different compounding frequencies, the rate and periods would need adjustment.
Q3: Can this calculator handle negative interest rates?
A: Mathematically yes, but the calculator restricts rates to positive values as negative rates are uncommon in personal finance.
Q4: What's a typical period in this calculation?
A: A period could be a year, month, or any time unit - just ensure the rate matches the period (annual rate for years, monthly rate for months).
Q5: How does inflation affect future value?
A: This calculator gives nominal future value. For real (inflation-adjusted) value, you'd need to use a real interest rate (nominal rate minus inflation rate).