Watch First

Watch: How to Use the Future Value Formula

Run time: 3:52Covers: the formula, each variable, and a worked exampleTaught by: Dr. Paul Borosky, DBA, MBA

The Short Answer

What Is the Future Value Formula?

Answer

The future value formula shows what an amount invested today will grow to after earning compound interest. Multiply the starting amount by one plus the interest rate, raised to the number of periods.

The Formula

FV = PV × (1 + r)n

FV
Future value: what the money grows to
PV
Present value: the amount you start with today
r
Interest rate per period, written as a decimal (6% = 0.06)
n
Number of periods the money grows

Want to See Where Your Money Is Headed?

Business ConsultingDr. Paul helps owners turn numbers like these into real decisions on cash, pricing, and growth.See consulting options → Business Plan WritingA complete plan with financial projections that lenders and investors can follow.See business plan prices → Business Plan TemplatesAn editable Word plan and Excel financial model built for your industry.Browse templates → Small Business EducationFree lessons on financial statements, ratios, and the formulas behind them.Start learning free →

Step by Step

How Do You Calculate Future Value?

Here is the question Dr. Paul uses with his college students: you deposit $5,000 today at 6% interest, compounded once a year. What is it worth in 10 years?

  1. 1

    Write down what you know

    PV = $5,000. r = 6%, or 0.06. n = 10 years. You are solving for FV.

  2. 2

    Add one to the rate

    1 + 0.06 = 1.06. This is how much each dollar grows in one year.

  3. 3

    Raise it to the number of periods

    1.0610 = 1.790848. Each dollar becomes about $1.79 after ten years of compounding.

  4. 4

    Multiply by the starting amount

    $5,000 × 1.790848 = $8,954.24. That is your future value.

  5. 5

    Sanity check it

    Simple interest would add $300 a year, or $3,000 total, for $8,000. Compounding earned an extra $954.24, because interest started earning interest.

Dr. Paul's Insight

Most wrong answers on future value problems are not math mistakes. They are setup mistakes: a monthly rate paired with years, or a percent typed as a whole number. Write down PV, r, and n before touching the calculator, and most errors disappear.

In Excel

How Do You Calculate Future Value in Excel?

Excel has a built-in FV function: =FV(rate, nper, pmt, pv). Enter the starting amount as a negative number, because it is money leaving your pocket. Here is how the same problems look in a spreadsheet.

ProblemExcel formulaAnswer
$5,000 at 6% for 10 years, compounded yearly=FV(6%,10,0,-5000)$8,954.24
$10,000 at 6% for 5 years, compounded yearly=FV(6%,5,0,-10000)$13,382.26
$10,000 at 6% for 5 years, compounded monthly=FV(6%/12,60,0,-10000)$13,488.50
$200 a month for 10 years at 6%=FV(6%/12,120,-200,0)$32,775.87

Notice the monthly rows: the rate is divided by 12 and the years are multiplied by 12. That one change is where most spreadsheet answers go wrong.

Avoid These

What Are the Most Common Future Value Mistakes?

  • Mixing periods. A monthly rate with a number of years, or the reverse. The rate and n must use the same period.
  • Typing the percent as a whole number. 6% is 0.06 in the formula. Using 6 turns $5,000 into over a trillion dollars.
  • Forgetting the negative sign in Excel. Leave PV positive and Excel returns a negative answer. The math is right; the sign shows direction of cash flow.
  • Using simple interest. Simple interest multiplies rate by time. Future value compounds, so interest earns interest.
  • Rounding too early. Round 1.790848 to 1.79 and you are off by $4. Keep the full number until the final step.

Real World Use

How a Student Uses the Future Value Formula

Exam Day

A finance midterm question, solved three ways

The question: "A client deposits $12,000 today at 5% compounded annually. What will it be worth in 8 years?" Start with the formula: $12,000 × (1.05)8 = $12,000 × 1.477455 = $17,729.46.

Then check it two ways. On a financial calculator: N = 8, I/Y = 5, PV = −12,000, PMT = 0, compute FV. In Excel: =FV(5%,8,0,-12000). All three land on $17,729.46.

Writing out the setup earns method points even if a keystroke goes wrong, and checking with a second tool catches the mistake before the professor does.

Keep Going

More Videos in This Series

Future Value Formula in Excel

The same kind of problem solved with the FV function, cell by cell. (6:55)

Present Value and Future Value Calculator Template in Excel

Build a reusable sheet that solves both directions in seconds. (6:24)

How to Calculate Present Value

The reverse question: what is a future amount worth today? (6:10)

Questions

Future Value Questions Students Ask

What is the future value formula?
The future value formula is FV = PV × (1 + r)n. PV is the amount you start with, r is the interest rate per period, and n is the number of periods. It tells you what money invested today will grow to with compound interest.
What is the difference between future value and present value?
They answer opposite questions. Future value moves money forward in time: what will $5,000 today be worth in ten years? Present value moves money backward: what is $8,954 received in ten years worth today? Same formula, solved for a different variable.
How do I calculate future value in Excel?
Use the FV function: =FV(rate, nper, pmt, pv). For $5,000 at 6% for 10 years, type =FV(6%,10,0,-5000) and Excel returns $8,954.24. Enter the starting amount as a negative number, because it is money leaving your pocket.
How does compounding frequency change future value?
More frequent compounding produces a slightly larger future value. Divide the annual rate by the number of periods per year and multiply the years by the same number. $10,000 at 6% for 5 years grows to $13,382.26 compounded annually and $13,488.50 compounded monthly.
How do I find the future value of monthly payments?
Use the future value of an annuity. In Excel, put the payment in the pmt slot: =FV(6%/12,120,-200,0) shows that $200 a month for 10 years at 6% grows to $32,775.87.
Beginner's Guide to Understanding Financial Statements and Financial Ratios book cover

Formulas make more sense when the numbers are real.

Dr. Paul's Beginner's Guide to Understanding Financial Statements and Financial Ratios walks through statements and ratios using Apple's actual 10-K, in plain English, the same way he teaches it in class.

Get the Book →

Written by Dr. Paul Borosky, DBA, MBA, current college professor, business consultant, and author with 14+ years and 1,000+ businesses served.

This page is for general educational purposes only. It is not financial, investment, legal, or tax advice.