1. What is Reverse Payment Calculation?

The reverse payment calculation determines the regular payment amount needed to reach a specific future value in a compound interest scenario. This is useful for financial planning when you have a target savings goal.

2. How Does the Calculator Work?

The calculator uses the reverse compound interest formula:

Where:

• \( PMT \) — Regular payment amount (USD)
• \( A \) — Desired future value (USD)
• \( r \) — Annual interest rate (as decimal)
• \( n \) — Number of compounding periods per year
• \( t \) — Time in years

Explanation: The formula calculates the fixed payment needed at regular intervals to reach the target amount, considering compound interest.

3. Importance of Reverse Payment Calculation

Details: This calculation helps in financial planning for goals like retirement savings, education funds, or major purchases by determining how much to save regularly.

4. Using the Calculator

Tips: Enter the desired future value in USD, annual interest rate as percentage, number of compounding periods per year (e.g., 12 for monthly), and time in years.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between this and regular compound interest?
A: Regular compound interest calculates future value from payments, while this calculates required payments to reach a target future value.

Q2: How does compounding frequency affect results?
A: More frequent compounding (higher n) generally means slightly smaller required payments due to more interest being earned.

Q3: What if I want to make annual payments?
A: Set n=1 and enter the annual interest rate. The calculator will determine the annual payment needed.

Q4: Can this be used for loan payments?
A: No, this is for savings/investments. Loan payments use a different formula that accounts for paying off principal.

Q5: What assumptions does this make?
A: It assumes fixed regular payments, constant interest rate, and no additional contributions or withdrawals.