About Future Value Compound Interest Formula
The term "interest" refers to the additional amount earned by an investor in addition to their investment (or the amount owed by a borrower in addition to the amount lent). The first period of compound interest is comparable to the first period of simple interest, but the second period of time is different. Interest is computed on the interest earned on the preceding period of time beginning with the second period, which is why it is called interest on interest. As a result, the future value formula (compound interest) aids in computing the final sum, which includes both the initial investment and total interest.
In compound interest (CI),
- The "present value" represents initial investment.
- The "future value" represents final amount (initial investment + total interest).
The future value formula of compound interest (CI) is:
FV = VP [1 + (r/n)]nt
- FV = PV [1 + (r/n)]nt
Here,
- PV = Present Value (Initial investment)
- r = rate of interest (in decimals, divide the given percentage by 100)
- n = number of times amount is compounding
- t = time in years
The value of the n depends on the number of times the amount is compounding.
- n = 1, if amount is compounded yearly.
- n = 2, if amount is compounded half-yearly.
- n = 4, if amount is compounded quart-yearly
- n = 12, if amount is compounded monthly.
- n = 52, if amount is compounded weekly.
- n = 365, if amount is compounded daily.
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