Time Value Of Money Calculator
A time value of money calculator helps stockholders to see the outcome that opportunity costs have on the money flow they get from an investment. This permits the stakeholder or predictor to see the affect that time has on the actual value of the money returned.
This Time Value of Money calculator solves any TVM difficult such as finding the current value (CV), Future value (FV), annuity payment (PMT), interest rate or the no. of periods.
Time value of money formula
Now that you are familiar with the concept of time value, let’s see how you can utilize time value of money calculator to define the future value of present money or the present value of money received in the future.
Before all of that, let’s check what parameters you can set during the computation.
- Current value (CV)is the present value of the future money.
- Future value (FV)is the future value of the present amount.
- Interest rate (i)is the annual nominal interest rate per period in percent.
- Term (t)constitutes the lifespan between the present (Time 0) and the future time we are calculating to (Time x), converted into years.
- Compounding frequency (n)refers to the number of intervals compounding occurs per period. You can choose the frequency as continuous as well, which is theoretically the maximum compounding frequency. In this case, the number of periods when compounding applies is an infinite number.
This calculator works in such a way that you can input your known values and you will receive the value you want. It’s that simple!
Finally, the time value of money formulas employed during the computation are the following:
FV = (CV * (1 + (i / n)) ^ (n * t))
CV = (FV / (1 + (i / n)) ^ (n * t))
In the case of continuous compounding, the below equations are used:
FV = CV * e ^ (i * t)
CV = FV / e ^ (i * t)
where e stands for the exponential constant, which is approximately 2.718.
Now, we can easily estimate the future value of $100 from the previously mentioned simple example.
CV = 100$
t = 3
i = 5%
n = 1
FV = (100 * (1 + (5 / 1)) ^ (1 * 3)) = 115.76
Thus, $100 in your pocket now would worth $115.76 three years later if a 5 percent interest rate is applied and compounding occurs yearly.
Current Value Vs. Future Value
The current value is simply the value of your money today. If you have $1,000 in the bank today then the current value is $1,000.
If you kept that same $1,000 in your wallet earning no interest, then the future value would decline at the rate of inflation, making $1,000 in the future worth less than $1,000 today.
Conversely, if you invested that $1,000 in a world where inflation didn’t exist, then the future value would rise at the rate of interest net of taxes making $1,000 (+ interest – taxes) worth more in the future than $1,000 today.
Future Value Calculation
Future Value = Current Value x (1 + Rate of Return)^Number of Years
While this formula may look complicated, this Future Worth Calculator makes the math easy for you by not only computing the variables present in this equation, but it also allows investors to account for recurring deposits, annual interest rates, and taxes.
However, please note when inputting data that applying historical inflation rates is acceptable but may prove inaccurate because the past is not the future.
Knowing Future Value Helps Investors
Stockholders benefit in three ways by calculating the future value of money:
- You can exactly determine how much taxes will cost you.
- You can exactly calculate how much inflation will reduce buying power.
- You can exactly calculate how much investment return will grow your capital.
- The net outcome provided by this future value calculator will then determine if you are better off accepting a dollar today or a dollar (plus interest minus inflation and taxes) tomorrow so you can make a smart investment decision.
Based on your future value calculations you can then fine-tune your investment strategy by taking one or more of the following actions:
- Raise the amount of your deposits.
- Increase the frequency of your deposits.
- Invest where you will earn more interest.
Other alternatives include investing for a longer time-frame by beginning earlier or ending later than originally planned.
The important point is when you know the specifics and calculate your numbers then you can make informed investment assessments because a dollar today is not the same as dollar tomorrow.
This future value calculator will tell you which money you should prefer and how to manage your finances accordingly.
Future Value Calculator Terms & Definitions
- Opening Savings Balance – The money you previously have saved in the investment.
- Enter the ______ deposit amount – The amount and regularity of deposits added to the investment.
- Annual Interest Rate (% ROI) – The annual percentage interest rate your money earns if deposited.
- Number of Years – The number of years the investment will be held.
- Tax Rate (Combine State and Fed %) – The combined state and federal tax rates to account for future value after taxes.
- Rate of Inflation (%) – The average annual rate of inflation expected every year during the number of years the investment will be held.
- Nominal Future Value – The future value of an investment not accounting the taxes and inflation.
- After-Tax Future Value – The future value of an investment after deducting taxes.
- Future Value After Taxes And Inflation – The future value of an investment after deducting taxes and inflation.