Future Value (FV) is a core financial concept that determines the value of a current asset at a specific date in the future based on an assumed rate of growth. It is the cornerstone of time value of money (TVM) calculations, helping investors and savers understand how much their capital will grow through the power of compounding.
The Future Value Formula
The standard formula for calculating the future value of a single sum is:
FV = PV × (1 + r/n)nt
Where:
FV: Future Value
PV: Present Value (Current principal)
r: Annual interest rate (decimal)
n: Number of compounding periods per year
t: Number of years
Example Calculation
Suppose you invest $10,000 in a high-yield account with a 5% annual interest rate, compounded monthly, for a period of 5 years. You also decide to contribute $100 every month.
Component
Value
Initial Principal
$10,000.00
Total Contributions
$6,000.00
Interest Earned
$3,212.56
Final Future Value
$19,212.56
Importance of Compounding Frequency
Compounding frequency significantly impacts the final result. The more frequently interest is calculated and added back to the principal, the faster the balance grows. For instance, daily compounding yields a slightly higher future value than annual compounding on the same principal amount and interest rate. This is often referred to as the "interest on interest" effect.
function calculateFutureValue() {
var pv = parseFloat(document.getElementById('initialPrincipal').value) || 0;
var annualRate = parseFloat(document.getElementById('annualInterestRate').value) / 100 || 0;
var years = parseFloat(document.getElementById('timeYears').value) || 0;
var n = parseInt(document.getElementById('compoundingFrequency').value) || 1;
var pmt = parseFloat(document.getElementById('monthlyAddition').value) || 0;
if (years <= 0 && pv <= 0 && pmt 0) {
var periodicRate = annualRate / 12;
var totalPeriods = years * 12;
fvAnnuity = pmt * ((Math.pow(1 + periodicRate, totalPeriods) – 1) / periodicRate);
}
var totalFV = fvPrincipal + fvAnnuity;
var totalInvested = pv + (pmt * years * 12);
var totalInterest = totalFV – totalInvested;
var resultContainer = document.getElementById('fvResultContainer');
var resultValue = document.getElementById('fvResultValue');
var resultBreakdown = document.getElementById('fvBreakdown');
resultValue.innerText = "$" + totalFV.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
resultBreakdown.innerText = "Total Principal: $" + totalInvested.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + " | Interest Earned: $" + totalInterest.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
resultContainer.style.display = 'block';
}