Enter the initial principal, annual growth rate, and number of years into the calculator to determine the future value of an endowment.
Endowment Growth Formula
The following formula is used to calculate the future value of an endowment.
FV = P * (1 + r)^n
Variables:
- FV is the future value of the endowment ($)
- P is the initial principal ($)
- r is the annual growth rate (expressed as a decimal)
- n is the number of years
To calculate the future value of an endowment, multiply the initial principal by the growth factor, which is one plus the annual growth rate raised to the power of the number of years.
What is Endowment Growth?
Endowment growth refers to the increase in value of an endowment fund over time due to investment returns. Endowments are funds that are invested to generate income, often for non-profit organizations, universities, or charities. The principal amount is typically kept intact while the investment income is used for specific purposes, such as scholarships or operational costs. Understanding the potential growth of an endowment is crucial for long-term financial planning and sustainability of the institution it supports.
How to Calculate Endowment Growth?
The following steps outline how to calculate the future value of an endowment.
- First, determine the initial principal (P) in dollars.
- Next, determine the annual growth rate (r) as a percentage and convert it to a decimal.
- Next, determine the number of years (n) the endowment will grow.
- Next, gather the formula from above = FV = P * (1 + r)^n.
- Finally, calculate the future value of the endowment (FV) in dollars.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Initial principal (P) = $10,000
Annual growth rate (r) = 5%
Number of years (n) = 10
