Calculating the Future Value of an Investment
Whether it's for the kids' education or for a retirement, investors need to know how much their investments will be worth in the future. In other words, if a person deposits PMT dollars into an investment earning an interest rate IR for NP years, what's the future value? Here's the formula that figures this out:
FV = PMT x ((1 + IR)NP 1) / IR
FV = PMT * (Math.pow(1 + IR, NP) - 1) / IR
Listing 3 tries it out using an annual payment of $1,000, an annual interest rate of 8%, and a term of 20 years.
Listing 3: Calculating the Future Value of an Investment
This example assumes annual payments. If you want to calculate the future value based on monthly payments, don't forget to multiply the number of years by 12 to get the total number of months (NP) and to divide the annual interest rate by 12 to get the monthly rate (IR).