Future Value Calculator Compound Interest

Compound Interest Formula:

\[ FV = P \times \left(1 + \frac{r}{comp}\right)^{comp \times n} \]

Principal Amount (P):

USD

Annual Interest Rate (r):

decimal

Compounding Periods per Year (comp):

unitless

Time Period (n):

years

Future Value (FV):

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1. What is Compound Interest?

Compound interest is the addition of interest to the principal sum of a loan or deposit, where the interest that has been added also earns interest. This differs from simple interest, where interest is not compounded.

2. How Does the Calculator Work?

The calculator uses the compound interest formula:

\[ FV = P \times \left(1 + \frac{r}{comp}\right)^{comp \times n} \]

Where:

\( FV \) — Future value of the investment
\( P \) — Principal investment amount
\( r \) — Annual interest rate (decimal)
\( comp \) — Number of compounding periods per year
\( n \) — Time the money is invested for (in years)

Explanation: The formula accounts for the exponential growth of money when interest is earned on both the initial principal and the accumulated interest from previous periods.

3. Importance of Future Value Calculation

Details: Understanding future value helps in financial planning, investment decisions, and comparing different investment options. It shows how money can grow over time with compound interest.

4. Using the Calculator

Tips: Enter principal in USD, annual interest rate as decimal (e.g., 0.05 for 5%), compounding periods per year (e.g., 12 for monthly), and time in years. All values must be positive.

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 any accumulated interest.

Q2: How does compounding frequency affect returns?
A: More frequent compounding leads to higher returns. Daily compounding yields more than monthly, which yields more than annual compounding.

Q3: What's the Rule of 72?
A: A quick way to estimate how long it takes to double your money: divide 72 by the interest rate (as percentage).

Q4: Can this calculator handle different currencies?
A: While the calculator displays USD, you can use any currency as long as all amounts are in the same currency.

Q5: How accurate is this calculator?
A: It provides precise mathematical calculations, but actual investment returns may vary due to fees, taxes, and changing rates.