1. What is the Future Value Formula?

The Future Value formula calculates how much an investment made today will grow to in the future, given a fixed annual rate of return. It's fundamental in finance for evaluating investment growth potential.

2. How Does the Calculator Work?

The calculator uses the Future Value formula:

Where:

• \( FV \) — Future value of the investment
• \( P \) — Principal investment amount
• \( r \) — Annual interest rate (in decimal)
• \( t \) — Time in years

Explanation: The formula accounts for compound growth, where earnings are reinvested to generate their own earnings.

3. Importance of Future Value Calculation

Details: Understanding future value helps investors make informed decisions about savings goals, retirement planning, and comparing different investment opportunities.

4. Using the Calculator

Tips: Enter principal in dollars, annual rate as a decimal (e.g., 0.07 for 7%), and time in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does compounding frequency affect results?
A: This calculator assumes annual compounding. More frequent compounding would yield slightly higher returns.

Q2: What's a reasonable rate of return to expect?
A: Historical stock market returns average about 7-10% annually, but actual returns vary year to year.

Q3: Can I use this for non-stock investments?
A: Yes, this formula works for any investment with a fixed rate of return, including bonds or savings accounts.

Q4: How does inflation affect these calculations?
A: These are nominal returns. For real (inflation-adjusted) returns, subtract inflation rate from your expected return.

Q5: What if I make regular contributions?
A: This calculator assumes a single lump sum investment. Regular contributions require a different formula.