Overview

Main Menu Name: Compound

Calculates the value a lump sum will grow to if compounded at a specified interest rate for a specified time-period.

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation determines the value a lump sum will grow to if compounded at a specified interest rate for a specified time-period.

The future value of a lump sum is what each dollar invested today in a hypothetical bank account, mutual fund, or some other type of investment will be worth at the end of a specified period.

The date that the investment is made designates the start of the investment period. The calculation assumes that no additional funds will be invested or withdrawn during the investment term, and the rate of return will not change.

The Future Value of a Lump Sum calculation is used to determine how much a sum invested today will be worth when that sum is needed, such as upon retirement or when children are ready for college.

The interest rate and investment term has a great effect on the future value of the invested dollars. Higher rates or longer terms result in a greater future value. For example, if $10,000 is invested at 12% interest for five years, the resulting sum is $17,623. If the same amount is invested at 13%, or if the term is increased to 6 years, the resulting sum is significantly higher.

Getting Started

The future value of a lump sum s what each dollar invested today in a bank account, mutual fund, or some other type of investment will be worth at the end of a specified period. The date that the investment is made designates the start of the investment period. The calculation assumes in its calculations that no additional funds will be invested or withdrawn during the investment term, and the rate of return will not change.

The Future Value of a Lump Sum calculation is used to determine how much a sum invested today will be worth when that sum is needed, such as upon retirement or when children are ready for college. The interest rate and investment term has a great effect on the future value of the invested dollars. Higher rates or longer terms result in a greater future value. For example, if $10,000 is invested at 12% interest for five years, the resulting sum is $17,623. If the same amount is invested at 13%, or if the term is increased to 6 years, the resulting sum is significantly higher.

Entering Data

1. Current Lump Sum:  Enter the sum initially invested in the fund.
2. Interest Rate per Period:  Enter the interest rate applied to the invested amount.
3. Number of Time Periods:  Enter the number of periods during which the initial sum will be earning interest.

Results

The calculation results shows the future value of a lump sum that is compounded at a specified interest rate for a specified period. The calculation assumes that the interest rate specified in the Interest Rate per Period entry fields remains the same throughout the investment term.