How To Calculate Monthly Interest Rate In Excel

This tutorial volition demonstrate diverse ways to calculate compound interest in Microsoft Excel.

What is chemical compound interest?

When you invest coin, yous tin earn interest on your investment. Say, for example, yous invest $3,000 with a 10% annual interest rate, compounded annually. One year from the initial investment (called the chief), yous earn $300 ($iii,000 x 0.10) in involvement, and then your investment is worth $3,300 ($iii,000 + $300). For the next flow, you lot earn involvement based on the gross effigy from the previous period. Using the case, two years from your principal investment, you earn $330 ($three,300 x 0.10) because your investment was worth $3,300. Now, information technology is worth $3,630.

The general formula for compound involvement is: FV = PV(i+r)n, where FV is time to come value, PV is present value, r is the interest charge per unit per menstruation, and n is the number of compounding periods.

How to calculate compound interest in Excel

I of the easiest means is to apply the formula: (gross figure) ten (1 + interest rate per catamenia).

If you are investing $1,000 with a 15% interest rate, compounded annually, below is how you would calculate the value of your investment after ane year.

In this case B2 is the Principal, and A2 is the Interest Rate per Catamenia. The "$" is used in the formula to ready the reference to column A, since the interest rate is constant in this instance.

You can summate the value of your investment after ii years by merely copying and pasting the formula into cell D2, as shown below.

C2 is the current gross figure. Notice how B2 automatically changes to C2, since the cell reference has changed.

The process above for calculating compound interest is piece of cake, but if you want to figure out the value of your investment after ten years, for example, this procedure is not efficient. Instead you should use a generalized chemical compound interest formula.

General Chemical compound Interest Formula (for Daily, Weekly, Monthly, and Yearly Compounding)

A more efficient way of computing compound involvement in Excel is applying the general interest formula: FV = PV(1+r)due north, where FV is future value, PV is present value, r is the involvement rate per period, and n is the number of compounding periods.

Say, for instance that you are investing $5,000 with a 10% annual interest rate, compounded semi-annually, and yous want to effigy out the value of your investment after five years. The spreadsheet below shows how this calculation can be done on Excel.

In this case, PV is the Principal, r is (Almanac Involvement Rate) / ii considering involvement is compounded semi-annually (twice per year), northward is (Compounding Periods per Year) ten (Twelvemonth), and FV is the Investment Value. This process is more efficient than the first ane because you don't have to calculate the gross figure after each period, saving quite a few adding steps.

FV Function and Chemical compound Interest

Lastly, you can summate chemical compound interest with Excel'southward born Hereafter Value Function. Similar to the previous process, the FV function calculates the futurity value of an investment based on the values of certain variables.

The variables (as shown above) are:
– rate is the interest rate for each flow.

– nper is the number of compounding periods.

– pmt is the additional payment per period, and information technology is represented as a negative number. If there is no value for "pmt," put a value of goose egg.

– pv (optional) is the principal investment, which is also represented every bit a negative number. If there is no value for "pv," you lot must include a value for "pmt."

– type (optional) indicates when boosted payments occur. "0" indicates that the payments occur in the beginning of the period, and "1" indicates that the payments are due at the end of the menstruum.

The previous semi-annual compound interest example tin be completed with the FV function.

The "rate" is (Annual Interest Charge per unit) / (Compounding Period per Year), "nper" is (Compounding Periods per Year) 10 (Years), "pmt" is 0, and "pv" is – (Principal).

Understanding how to calculate chemical compound involvement is important for predicting investment performance, whether it'due south for retirement planning or your personal portfolio, and Excel is an splendid tool to do so.

For more information about Compound Interest visit Investopedia

Source: https://www.automateexcel.com/formulas/compound-interest-calculate-excel/

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