1. What is a Lump Sum Calculator?

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

Purpose: It helps investors understand how their money can 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 ($)
• \( r \) — 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 Lump Sum Calculations

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

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as decimal, e.g., 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 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: This varies widely - savings accounts might offer 0.5-2%, while stock market averages about 7-10% annually long-term.

Q4: Can I calculate present value with this formula?
A: Yes, by rearranging the formula to solve for P instead of FV.

Q5: How does inflation affect these calculations?
A: Inflation reduces purchasing power. For real returns, subtract inflation rate from the interest rate.