To compare the effect of (non-annual) compounding periods on growth, you can set up a worksheet as shown, and calculate future value with the FV function. In the example shown, $1000 is invested with an annual interest rate of 5%, the formulas in column D calculate the future value of the $1000 assuming the compounding periods shown in column C. The formula in D5, copied down, is:
The FV function calculates compound interest and return the future value of an investment over a specified term. To configure the function, we need to provide a rate, the number of periods, the periodic payment, the present value:
Present value (pv) is the named range G4
Rate is provided as as annual rate/periods, or rate/C5
Number of periods (nper) is given as periods * term, or C5*term
There is no periodic payment, so we use zero (0)
By convention, the present value (pv) is input as a negative value, since the $1000 "leaves your wallet" and goes to the bank during the term.
The named ranges automatically behave like absolute references, so there is no need to use dollar signs ($).
The FV function can calculate compound interest and return the future value of an investment. To configure the function, we need to provide a rate, the number of periods, the periodic payment, the present value. To get the rate (which is the period...
If you have an annual interest rate, and a starting balance you can calculate interest with: = balance * rate and the ending balance with: = balance + ( balance * rate ) So, for each period in the example, we use this formula copied down the table...
The Effective Annual Rate (EAR) is the interest rate after factoring in compounding. In other words, the EAR is the rate actually earned due to the effect of compounding more frequently than once a year (annually). The EFFECT function calculates the...
The Excel FV function is a financial function that returns the future value of an investment. You can use the FV function to get the future value of an investment assuming periodic, constant payments with a constant interest rate.
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