1. What is Time Value of Money?

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 calculator helps you determine the future value of regular monthly payments.

2. How Does the Calculator Work?

The calculator uses the Future Value of an Ordinary Annuity formula:

Where:

• \( FV \) — Future Value (USD)
• \( PMT \) — Monthly payment amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12, in decimal)
• \( n \) — Total number of payments (years × 12)

Explanation: The formula accounts for compound interest on each monthly payment over the specified time period.

3. Importance of Future Value Calculation

Details: Understanding the future value of investments helps with retirement planning, savings goals, and comparing different investment options.

4. Using the Calculator

Tips: Enter monthly payment in USD, annual interest rate as a percentage (e.g., 5 for 5%), and time period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity assumes payments at the end of each period (month), while annuity due assumes payments at the beginning. This calculator uses ordinary annuity formula.

Q2: How does compounding frequency affect results?
A: More frequent compounding (monthly vs. annually) increases future value. This calculator uses monthly compounding.

Q3: What if I want to include an initial investment?
A: For an initial investment, you would add its future value separately: \( FV_{\text{total}} = PV \times (1 + r)^n + PMT \times \frac{(1 + r)^n - 1}{r} \)

Q4: How accurate is this calculator?
A: It provides a mathematical projection assuming constant returns and regular payments. Actual investment results may vary.

Q5: Can I use this for loan calculations?
A: This calculates investment growth. For loans, you'd typically use present value formulas to determine payments.