XL98: How to Calculate Compound Interest

ID: Q191017

The information in this article applies to:

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 98 Macintosh Edition 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

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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

Additional query words: XL98

Keywords : kbdta xlformula
Version : MACINTOSH:98
Platform : MACINTOSH
Issue type : kbhowto