Future Value
FV = PV × (1 + r)^n
Compound a present amount forward to find its future worth.
Variables
Value at end of n periods
Starting amount today
Growth rate per period
Number of compounding periods
Example Calculation
Scenario
You invest $5,000 today at 6% annual interest for 10 years.
Given Data
Calculation
FV = 5000 × (1.06)^10 = 5000 × 1.7908 = 8,954.24
Result
$8,954.24
Interpretation
$5,000 invested at 6% grows to $8,954.24 in 10 years through compound interest.
When to Use This Formula
- ✓Savings growth projections
- ✓Retirement planning problems
- ✓Comparing investment alternatives
Common Mistakes
- ✗Forgetting that compounding is exponential, not linear
- ✗Mixing annual and monthly rates
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Common questions about this formula
Divide 72 by the annual rate to estimate how many years it takes to double your money. At 6%, roughly 12 years.
More frequent compounding (monthly vs annual) earns interest on interest sooner, producing a higher effective rate. $1,000 at 12% compounded monthly grows faster than at 12% compounded annually because each month's interest earns interest the next month.