1. What is a 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 their money could grow over time with a fixed rate of return.

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 annual rate to the growing balance each year.

3. Importance of Lump Sum Calculations

Details: Understanding potential growth helps with retirement planning, investment decisions, and financial goal setting.

4. Using the Calculator

Tips: Enter the principal amount, annual rate (5% = 0.05), and number of years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Compound interest earns interest on previous interest, while simple interest only earns on the principal.

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

Q3: What's a realistic rate of return?
A: Historically, stock market returns average 7-10% annually, but conservative investments may yield 2-5%.

Q4: How does inflation affect these calculations?
A: These are nominal returns. For real returns, subtract expected inflation from the rate.

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