1. What is a Future Value of Lump Sum Calculator?

Definition: This calculator estimates the future value of a single lump sum investment based on compound interest.

Purpose: It helps investors understand how much a one-time investment will grow over time with compound interest.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( FV \) — Future value of the investment ($)
• \( P \) — Principal amount (initial investment $)
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of years invested

Explanation: The formula calculates compound interest, where interest is earned on both the principal and accumulated interest.

3. Importance of Future Value Calculation

Details: Understanding future value helps with financial planning, retirement savings, and comparing investment options.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), and number of years. All values must be ≥ 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal, while compound interest is calculated on principal plus accumulated interest.

Q2: How often is interest compounded in this calculator?
A: This calculator assumes annual compounding. For different compounding periods, the formula would need adjustment.

Q3: What's a typical interest rate for investments?
A: Rates vary widely: savings accounts (0.5-2%), bonds (2-5%), stocks (7-10% historically).

Q4: How does inflation affect future value?
A: The calculator shows nominal value. For real value, subtract expected inflation from the interest rate.

Q5: Can I calculate present value with this formula?
A: Yes, by rearranging the formula: \( P = \frac{FV}{(1 + r)^n} \).