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Future Value Factor Formula:
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The Future Value Factor is a multiplier used to determine the future value of a sum of money invested at a specific interest rate over a certain number of periods. It represents how much an investment will grow over time.
The calculator uses the Future Value Factor formula:
Where:
Explanation: The formula calculates the growth factor for an investment, showing how much money will accumulate over time given a specific interest rate and number of compounding periods.
Details: The Future Value Factor is crucial for financial planning, investment analysis, and understanding how money grows over time through compounding interest. It helps investors and financial planners make informed decisions about long-term investments.
Tips: Enter the rate per period as a decimal (e.g., 5% = 0.05) and the number of periods. Both values must be non-negative.
Q1: What's the difference between Future Value Factor and Future Value?
A: The Future Value Factor is the multiplier used to calculate Future Value. Future Value = Present Value × Future Value Factor.
Q2: How does compounding frequency affect the Future Value Factor?
A: More frequent compounding (e.g., monthly vs. annually) increases the Future Value Factor, as interest is earned on interest more often.
Q3: Can the Future Value Factor be less than 1?
A: No, since (1 + r) is always ≥ 1 when r ≥ 0, and raising it to any positive power n ≥ 0 results in a value ≥ 1.
Q4: How is this different from Present Value Factor?
A: Future Value Factor calculates growth forward in time, while Present Value Factor discounts future values back to present.
Q5: What if the rate is negative?
A: While the calculator accepts negative rates, they represent depreciation rather than growth, resulting in a Future Value Factor less than 1.