Home
Back
Compound Interest Formula:
| From: | To: |
The Stock Market Calculator uses the compound interest formula to estimate the future value of an investment based on principal amount, annual rate of return, and time period. It helps investors project potential growth of their investments in the stock market.
The calculator uses the compound interest formula:
Where:
Explanation: The formula calculates how an investment grows over time through compound returns, where earnings are reinvested to generate additional earnings.
Details: Understanding compound interest is crucial for long-term investment planning. It demonstrates how investments can grow exponentially over time, highlighting the power of reinvesting returns and the importance of starting early.
Tips: Enter principal amount in dollars, rate as a decimal (e.g., 0.08 for 8%), and time in years. All values must be positive numbers.
Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest, leading to exponential growth.
Q2: How often is interest compounded in this calculator?
A: This calculator assumes annual compounding, which is common for long-term stock market projections.
Q3: Are stock market returns guaranteed?
A: No, stock market returns are not guaranteed. This calculator provides a mathematical projection based on assumed rates of return, which may vary in reality.
Q4: What is a realistic rate of return for stock market investments?
A: Historically, the average annual return of the S&P 500 has been around 7-10% after inflation, but returns can vary significantly from year to year.
Q5: Can this calculator account for additional contributions?
A: This version calculates compound growth for a single initial investment. For regular contributions, a different formula would be needed.