XL: How to Calculate Compound Interest

ID: Q141695

The information in this article applies to:

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

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

where PV is present value, R is the interest rate, and N is the number of investment periods.

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

Microsoft provides programming examples for illustration only, without warranty either expressed or implied, including, but not limited to, the implied warranties of merchantability and/or fitness for a particular purpose. This article assumes that you are familiar with the programming language being demonstrated and the tools used to create and debug procedures. Microsoft support professionals can help explain the functionality of a particular procedure, but they will not modify these examples to provide added functionality or construct procedures to meet your specific needs. If you have limited programming experience, you may want to contact the Microsoft fee-based consulting line at (800) 936-5200. For more information about the support options available from Microsoft, please see the following page on the World Wide Web:

http://www.microsoft.com/support/supportnet/overview/overview.asp

To create this custom function, enter the following in a new Visual Basic module:


   Function Yearly_Rate(PV, R, N) As Double

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

   End Function

To use the custom function:

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.

In any blank cell, type the following formula:
=Yearly_Rate(A1,A2,A3)

The future value of the compounding of interest, to the original investment of $1000.00 is $1,259.71.

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"

Additional query words: 5.00a 5.00c 8.00 97 XL97 XL7 XL5

Keywords : xlvbahowto xlformula
Version : WINDOWS:5.0,5.0c,7.0,7.0a,97; MACINTOSH:5.0,5.0a
Platform : MACINTOSH WINDOWS
Issue type : kbhowto kbinfo