This future value calculator forecasts the future amount an investment (present value) will generate by considering a specific interest rate and a no. of periods/years the interest is compounded. There is in depth information on how to calculate this financial indicator below the form.
How does this future value calculator work?
This application can calculate the future value of a given present value invested over a certain period of time at a specific interest rate. In finance theory, at the most basic level the future value is defined as the future equivalent gain an investment (such as a deposit, bonds or a specific investing plan in a factory, or any similar) can generate within an assumed time frame and at a specific return rate that is compounding; while it is a function that depends on the following terms:
Present value [PV], or usually the so called principal this is the amount of money assumed to be paid or invested at the start.
Interest rate per period [IE], usually referred to as the rate of return is what the investment generates as a result of the use of money. This is also considered as a cost for money, while it is expressed as an yearly percentage.
Number of time periods [NP] represents the number of time the interest is compounded which means this should refer to the same time unit as the Interest rate per period. For instance if you consider the Interest rate per period as monthly, you should express that periods number in months too.
Compound interest scheme which means the interest increases exponentially over the time given.The algorithm behind this future value calculator applies the formulas explained here:
- Future Value [FV] = PV * (1 + IE)^NP
- Interest [IE] = FV – PV
- Compound interest factor [C] = FV / PV
Please remember that the model assumes the interest rate is fixed.
Apart from the above 3 indicators this calculator also returns a detailed graph showing the evolution of the present value and interest over time until it reaches the forecasted future value.
The usability of the FV …
This financial indicator may help investors:
Estimate how much they can get from a specific investment;
Compare different investment plans in order to select the most profitable.
Example of a calculation
An individual analyses the possibility to invest $100,000 over 15 years at a constant interest rate of 3.5%. Which is the future value he expects?
■ Future Value (FV): $167,534.88
■ Interest: $67,534.88
■ Compound interest factor: 1.67535
The evolution of the investment per each period is presented below:
|Period||Starting balance||Interest||Ending Balance|