Future Value Calculator
Let's imagine that you win the lottery and you win £10,000. You are given two options: you either take the money today or you are given the money in 5 years. There are few reasons to accept the money in 5 years' time over today, which is why most people would choose to take the money today.
Future Value Formula
Future Value (FV) = PV × (1 + r) n
FV = the Future Value,
PV = the Present Value,
r = the interest rate (as a decimal),
n = the number of periods
Calculation of Future Value
The values which are described below are very essential when calculating the future value of an investment.
Present Value: The present value is the value of the money you are investing at the current time.
Annual Interest Rate: This value can have a big impact on the future value of your investments. Having a higher annual interest means that there will be a higher future value.
Payment Amount: If you have chosen to make payments on a regular basis then this amount will help you know the value of these payments on a future date.
Number of Payments: This value is largely influenced by how often payments are made and how frequently they occur. If you make greater payments, you will find that you will have a greater future value.
Payment Frequency: This value defines how often payments are made. Payments are usually either monthly, quarterly, 6 monthly or annually. If you make payments more frequently then you will find that your future value is going to be higher.
What is Future Value Calculator
A Future Value Calculator is a financial tool used to calculate the future value of an investment or a series of cash flows. It helps individuals and businesses estimate the value of an investment or savings over time, considering factors such as interest rates and the compounding of returns.
Here's how a typical Future Value Calculator works:
Initial Investment or Cash Flow: You input the initial amount of money you plan to invest or the value of the cash flow you expect to receive. This represents the principal amount.
Interest Rate: The calculator allows you to input the annual interest rate or the rate of return you expect to earn on the investment. This rate determines how much interest your investment will accumulate over time.
Time Period: You specify the time period for which you plan to hold the investment or receive the cash flows. This can be in years, months, or any other unit of time.
Calculation: Using the provided inputs, the Future Value Calculator calculates the estimated future value of your investment, taking into account the compounding of returns over the specified time period. Compounding means that the interest earned in one period is added to the principal, and future interest is then calculated based on this increased amount.
Displaying the Result: The calculator presents the estimated future value of your investment at the end of the specified time period. This represents the potential value of your investment based on the assumed interest rate and compounding.
The Future Value Calculator helps individuals evaluate the growth potential of their investments, compare different investment options, and make informed decisions about saving and investing. By adjusting the initial investment, interest rate, and time period, users can see how these factors impact the future value of their investment.
It's important to note that the calculated results are estimates based on the provided inputs and assumptions. Actual earnings may vary based on changes in interest rates, investment performance, fees, and other factors specific to the investment or financial product. It's always advisable to consult with a qualified financial advisor or conduct detailed research before making any investment decisions.
Future Value Calculator Example
Certainly! Here is an example of a Future Value calculator table that shows the future value of an investment over multiple time periods using a given principal amount, interest rate, and time period:
Principal Amount: $1000 Interest Rate: 5% Time Period Future Value -------------------------------- 1 year $1,050.00 2 years $1,102.50 3 years $1,157.63 4 years $1,215.51 5 years $1,276.28
In this example, we assume an initial principal amount of $1000 and an annual interest rate of 5%. The table displays the future value of the investment over a span of 5 years.
The future value for each time period is calculated using the formula:
future_value = principal * (1 + interest_rate) ** time_period.
To calculate the future value for each time period, we perform the following calculations:
- For 1 year: $1,000 * (1 + 0.05) ** 1 = $1,050.00
- For 2 years: $1,000 * (1 + 0.05) ** 2 = $1,102.50
- For 3 years: $1,000 * (1 + 0.05) ** 3 = $1,157.63
- For 4 years: $1,000 * (1 + 0.05) ** 4 = $1,215.51
- For 5 years: $1,000 * (1 + 0.05) ** 5 = $1,276.28
The table format makes it easy to visualize the growth of the investment over time, showing the future value for each time period.
Please note that the values in the table are rounded for clarity and may not reflect exact calculations.