To reach a future value of $48,997.75 you will need an annual return rate of 6.00%.
Put simply, the time value of money concept states that $1 today is worth more than $1 at some time in the future. This is because when you have the money right now, you’re able to do things with it—like invest it into something that earns interest.
We have a full lesson on the time value of money, as well as many other lessons and calculators for various uses of TVM as well.
The calculator is very powerful but also designed to be easy to use. Simply select the tab for what you are looking to solve for and enter the required details. The calculator will then return your results quickly and accurately.
Let’s say that you have $100 to invest in a savings account. This $100 is your present value (PV) because you have it in hand right now. You can calculate what that $100 will be worth in the future if you invested it into an account that pays 10% interest per year for a one year period.
The answer is clearly $110, and this is your future value (FV). $100 today is worth $110 one year from now if the interest rate is 10%.
The real power of TVM comes when you think about the compounding interest over a longer period of time. Let’s say you leave the money in for one more period at 10%.
Your new PV is $110, and so you earn 10% interest on this new amount:
$$Interest = \$110 \times 0.10 = \$11$$
$$FV = \$110 + \$11 = \$121$$
So, if you invest $100 for two years at 10% per year interest, the future value of that money is $121.
The calculator can work out what the future value is based on the number of periods, the starting, principal, the interest rate, and the payments (if any) made.
Note: you can set PMT to zero if you don’t have payments to calculate.
The PMT tab lets you calculate the total payment amount you need to make to reach the desired future value given the interest rate, number of periods and the starting principal.
This can be very useful for financial planning for a variety of things. For example, let’s say you want to invest in a rental property and you have how much you want to invest (principal) and you know how many periods you want and the interest rate, as well as the future value of the property.
The calculator would let you work out what the annual payment for that would need to be.
This tab lets you calculate what interest rate you would need to have in order to reach your future value figure, given your starting principal, the number of periods, and the amount you can pay per period.
Let’s say you know what you want the future value of your investment to be worth, and you know how much you have to invest now, as well as your payment per period and the interest rate you can get.
This tab will let you calculate how many full periods you will need to invest for in order to meet your future value.
To hit your required FV you may need to earn slightly more than the FV because you need a full period to get the required interest, so the calculator will also show you the exact FV you’ll receive as well as the number of periods required.
This tab lets you figure out how much money you need to invest upfront in order to hit your future value target, given the number of periods, interest rate, and payment per period.
Typically, the payment is made at the end of the period, and the calculator defaults to this setting when calculating interest.
If you want to calculate the interest with the payment made at the beginning of the compound period, you can switch this and see how it affects the interest earned.
The value of a current amount taken to a future date at a specified interest rate is called the future value. The formula used to get the future value is FV=PV(1+i)n, where the present value PV increases for each period into the future by a factor of 1 + i.
In the online finance calculator, PMT calculates the total payment amount you need to make to reach the desired future value given the interest rate, number of periods and the starting principal.
The formula to calculate the interest is Interest = P x R x N. Where P is the Principal amount or the beginning balance, R is the Interest rate which is usually per year, and N is the Number of time periods which is one-year time periods.
To calculate the Principal amount, the formula to use is P = I / (RT) where I is Interest Amount, R is Rate of Interest, and T is Time Period.
Depending on your needs, there are various types of financial calculators. A financial calculator will help you aid your financial journey especially when creating budgets.