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Investment Formula:
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The Investment Calculator Moneysmart helps you calculate the future value of an investment based on the present value, interest rate, and time period. It uses the compound interest formula to project investment growth over time.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how much an investment will grow over time with compound interest, where earnings are reinvested to generate additional earnings.
Details: Understanding future value helps in financial planning, retirement planning, and making informed investment decisions. It shows the power of compound interest over time.
Tips: Enter present value in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and number of years. All values must be valid (PV > 0, rate ≥ 0, years ≥ 0).
Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and 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: Can I use this for monthly investments?
A: This calculator is for lump sum investments. For regular contributions, a different formula would be needed.
Q4: What is a good interest rate for investments?
A: Interest rates vary by investment type and risk. Historically, stock market returns average 7-10% annually, while bonds offer lower returns with less risk.
Q5: How does inflation affect investment returns?
A: Inflation reduces purchasing power. Real returns = nominal returns - inflation rate. Always consider inflation when evaluating investment performance.