XL: How to Calculate Compound Interest

• Microsoft Excel for Windows, versions 5.0, 5.0c
• Microsoft Excel for Windows 95, versions 7.0, 7.0a
• Microsoft Excel 97 for Windows
• Microsoft Excel for the Macintosh, versions 5.0, 5.0a
• Microsoft Excel 98 Macintosh Edition

SUMMARY

Compound interest is the amount that a dollar invested now will be worth in a given number of periods at a given compounded interest rate per period. Although Microsoft Excel does not include a function for determining compound interest, you can use the following formula for this calculation:

   =PV*(1+R)^N

MORE INFORMATION

Suppose you have $1,000.00 in an investment account. The account pays 8- percent interest and this interest is compounded annually. How much will the investment be worth at the end of three years?

The following formula typed into a cell on a worksheet, will return the value $1,259.71:

     =1000*(1+.08)^3

Creating a Function Macro to Determine Compound Interest

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   Function Yearly_Rate(PV, R, N) As Double

       Yearly_Rate = PV*(1+R)^N    'Performs computation

   End Function

1. Type the following values on a worksheet:

   A1: 1000

      A2:   .08
      A3:     3
   
      where A1 contains the present value of the investment, A2 contains
      the interest rate, and A3 contains the number of investment periods.
   
   

2. In any blank cell, type the following formula:

         =Yearly_Rate(A1,A2,A3)
   

REFERENCES

"Cost Accounting-A Managerial Approach," Charles T. Horgren, Prentice- Hall,Inc., Fourth Edition, pages 906-907

"Visual Basic User's Guide," version 5.0, Chapter 3, "Creating a User- Defined Function"