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

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   http://www.microsoft.com/support/supportnet/refguide/

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:

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)

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: 5.00 5.00a 5.00c 7.00 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

Last Reviewed: May 17, 1999