1. What is the Lump Sum Formula?

The lump sum formula calculates the future value of a single amount of money based on compound interest over time. It's fundamental in finance for understanding how investments grow.

2. How Does the Calculator Work?

The calculator uses the future value formula:

Where:

• \( FV \) — Future value (currency)
• \( PV \) — Present value (currency)
• \( r \) — Interest rate per period (unitless)
• \( t \) — Number of periods (years)

Explanation: The formula accounts for compound growth, where interest earns additional interest over time.

3. Importance of Future Value Calculation

Details: Understanding future value helps with investment planning, retirement savings, and comparing different financial options.

4. Using the Calculator

Tips: Enter present value in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and time in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound interest?
A: Simple interest calculates on principal only, while compound interest includes previously earned interest.

Q2: How often is interest compounded in this formula?
A: This assumes annual compounding. For different periods, adjust the rate and time accordingly.

Q3: Can this formula account for additional contributions?
A: No, this is for single lump sums. For regular contributions, use the future value of annuity formula.

Q4: How does inflation affect future value?
A: The formula doesn't account for inflation. For real returns, subtract inflation rate from the interest rate.

Q5: What's the Rule of 72?
A: A quick estimate: divide 72 by the interest rate to find how many years it takes to double your money.