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Future Value Formula:
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The compounded annually formula calculates the future value of an investment or loan where interest is compounded once per year. It shows how money grows over time through the power of compound interest.
The calculator uses the future value formula:
Where:
Explanation: The formula calculates how much an initial investment will be worth after a specified number of years, taking into account annual compounding of interest.
Details: Future value calculations are essential for financial planning, investment analysis, retirement planning, and understanding the time value of money. They help individuals and businesses make informed financial decisions.
Tips: Enter the principal amount in USD, annual interest rate as a decimal (e.g., 0.05 for 5%), and number of years. All values must be positive numbers.
Q1: What is the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.
Q2: How does compounding frequency affect future value?
A: More frequent compounding (monthly, quarterly) results in higher future values due to interest being calculated on interest more often.
Q3: What is a typical range for annual interest rates?
A: Savings accounts typically offer 0.5-2%, bonds 2-5%, stocks historically 7-10% annually, though rates vary by investment type and economic conditions.
Q4: Can this formula be used for loans?
A: Yes, the same formula applies to loans where interest compounds annually, though most consumer loans compound more frequently.
Q5: How accurate is this calculation for real-world investments?
A: This provides a theoretical calculation. Real-world returns may vary due to fees, taxes, inflation, and market fluctuations.