What happens to future value when interest rates rise?

When interest rates rise, the future value of an investment increases. This is because the future value is calculated based on the formula that accounts for the compound interest applied to the principal amount over a certain period. Specifically, the future value is given by the formula:

[ FV = PV (1 + r)^n ]

Where ( FV ) is the future value, ( PV ) is the present value, ( r ) is the interest rate, and ( n ) is the number of periods.

As the interest rate ( r ) increases, the growth factor ( (1 + r) ) becomes larger, which means that the amount of interest accrued over time is greater. This results in a higher future value for any given present value. Therefore, an increase in interest rates directly translates to a higher return on investment when compounding is taken into account, leading to an increase in future value.