# A Future Value of Money Calculator

“Money makes money. And the money that money makes makes more money.”

- Benjamin Franklin

The *Future Value of Money* is the sum that an investment with a fixed, compounded interest rate will grow to by a specified future date. For purposes of the calculation, the investment can be a single, lump sum deposited at the beginning of the first investment period or an annuity with a series of equally-spaced payments. The “time value of money” presents an important financial concept as it can be used to compare and evaluate investment alternatives and to make other financial decisions.

#### The Advantage of Receiving Your Money Today

The concepts of present and future value of money rely on the premise that, all else being equal, an investor would prefer to receive a payment of a fixed amount of money today, rather than an equal amount in the future. Because money has time value, we would expect the future value to be greater than the present value. The difference between the two is dependent upon the number of compounding periods and the available interest rate.

#### A Future Value of Money Example

As an example, if an investor put $1 into an investment opportunity for one year with an annual interest rate of 5%, that dollar would grow to $1.05 at the end of that year. The future value of that dollar would be $1.05 at a 5% interest rate given a one-year period. You can say, then, that the present value of the $1.05 you expect to receive in one year is $1.

The future value of any amount of money is simply what that amount of money will be worth if given a rate of interest and a specific period of time.

#### Calculating the Future Value of Money

The formula for the future value of money can be written as:

##### Future Value = Present Value X (1 + Interest Rate) ^ Number of Investment Periods

To summarize, money has a time value because it can be invested to make more money, which makes a dollar received in the future less valuable than a dollar received today. On the other hand, a dollar acquired today is more valuable than a dollar acquired in the future because that dollar can be invested today to make more money.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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