There are two ways to calculate Future Value (FV):

1) For an asset with simple annual interest: = Original Investment x (1+(interest rate*number of years))

2) For an asset with interest compounded annually: = Original Investment x ((1+interest rate)^number of years) Consider the following examples:

1) $1000 invested for five years with simple annual interest of 10% would have a future value of $1,500.00.

2) $1000 invested for five years at 10%, compounded annually has a future value of $1,610.51.

When planning investment strategy, it's useful to be able to predict what an investment is likely to be worth in the future, taking the impact of compound interest into account. This formula allows you (or your calculator) to do just that:

Pn = P0(1+r)n
Pnis future value of P0
P0 is original amount invested
r is the rate of interest
n is the number of compounding periods (years, months, etc.)


Note in the example below that when you increase the frequency of compounding, you also increase the future value of your investment.

P0 = $10,000
Pn is the future value of P0
n = 10 years
r = 9%

Example 1- If interest is compounded annually, the future value (Pn) is $23,674.
Pn = $10,000(1 + .09)10 = $23,674

Example 2 - If interest is compounded monthly, the future value (Pn) is $24,514.
Pn = $10,000(1 + .09/12)120 = $24,514

To read more on this subject, see Continuously Compound Interest and Accelerating Returns With Continuous Compounding.

Present Value And Discounting

Related Articles
  1. Investing

    Understanding the Power of Compound Interest

    Understanding compound interest is important for both investing and borrowing money.
  2. Investing

    Accelerating Returns With Continuous Compounding

    Investopedia explains the natural log and exponential functions used to calculate this value.
  3. Investing

    Calculating Future Value

    Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today.
  4. Investing

    The Effective Annual Interest Rate

    The effective annual interest rate is a way of restating the annual interest rate so that it takes into account the effects of compounding.
  5. Investing

    Overcoming Compounding's Dark Side

    Understanding how money is made and lost over time can help you improve your returns.
  6. Investing

    How to Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  7. Investing

    4 Ways Simple Interest Is Used In Real Life

    Simple interest works in your favor when you're a borrower, but against you when you're an investor.
  8. Retirement

    Compounding Is Important in the Later Years Too

    The power of compounding is even greater in the later years of saving for retirement.
Frequently Asked Questions
  1. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  2. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  3. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
  4. What Is the Difference between Tier 1 Capital and Tier 2 Capital?

    Tier 1 capital is a bank's core capital, whereas tier 2 capital is a bank's supplementary capital.
Trading Center