suppose my present value of cash is 2,22,051 and its future value is calculated by using the formula FV=PV(1+r)^n with r=8 and n=3.So future value is 12,95,001.432

Now if I go to fixed deposit calculator and tried calculating future value of present cash 2,22,051 with interest 8.5% and period of 36 months then it is 285,783.77.

so why there is huge difference between these two?

  • 1
    fixed deposit calculator Which calculator are you talking about ?? Did you use r as 0.08 or used 8 ?? Compunding for 36 months is very different from compounding for 3 years. You calculate interest on interest earned for 36 months. – DumbCoder Mar 31 '14 at 11:01

In the first calculation you cite, $222,051.00 grows to $1,295,001.432 in three years. Take the ratio of end to start, take the cube root, and you get 1.8. You did the first calculation using an interest rate of 80%

That should explain the large difference in results


In the second calculation you cite, if one assumes that the interest rate is 8.5% per year nominal interest rate, compounded quarterly, the future value of $222,051.00 is $285,783.77, exactly the result you found.

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