Future Value of Money

Topic

Financial Literacy

Definition

The future value of money is the value of a current asset at a specified date in the future, calculated using a specified rate of return.

Description

The future value of money is a financial concept used to determine how much a current investment will grow over time, considering a specific interest rate or rate of return. It is essential for investment planning and comparing different financial options. Understanding the future value of money helps individuals and businesses make informed decisions about savings and investments. In real-world applications, it is used to evaluate retirement savings, education funds, and other long-term financial goals. Algebraically, it is calculated using the formula 

where FV is the future value, PV is the present value, r is the rate of return, and n is the number of periods. In math education, this concept introduces students to exponential growth and financial forecasting. A teacher might say, "The future value of money shows how much your savings will grow over time with interest, helping you plan for the future."

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