1. What is Lump Sum Future Value Calculation?

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

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

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( FV \) — Future value ($)
• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (decimal)
• \( n \) — Number of years

Explanation: The formula calculates compound interest by applying the interest rate to both the initial principal and accumulated interest from previous periods.

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 in dollars, annual interest rate as decimal (5% = 0.05), 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 earns interest on both principal and accumulated interest.

Q2: How often is interest compounded in this calculator?
A: This assumes annual compounding. For other periods, adjust the rate and years accordingly.

Q3: What's a typical interest rate for investments?
A: Historical stock market returns average 7-10%, bonds 3-5%, savings accounts 1-3% annually.

Q4: How do taxes affect future value?
A: Taxes reduce actual returns. For accurate calculations, use after-tax return rates.

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