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 $1000 "leaves your wallet" and goes to the bank during the term.
The named ranges automatically behave like absolute references, so there is no need to use dollar signs ($).
To calculate compound interest in Excel, you can use the FV function . This example assumes that $1000 is invested for 10 years at an annual interest rate of 5%, compounded monthly. In the example shown, the formula in C10 is: = FV ( C6 / C8 , C7 *...
To calculate simple interest in Excel (i.e. interest that is not compounded), you can use a formula that multiples principal, rate, and term. This example assumes that $1000 is invested for 10 years at an annual interest rate of 5%. Simple interest...
To calculate annual compound interest, you can use a formula based on the starting balance and annual interest rate. In the example shown, the formula in C6 is: = C5 + ( C5 * rate ) Note: "rate" is the named range F6. How this formula works If you...
To calculate the effective annual interest rate, when the nominal rate and compounding periods are given, you can use the EFFECT function. In the example shown, the formula in D5, copied down, is: = EFFECT ( rate , C5 ) where "rate" is the named...
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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