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How to Calculate Compound Interest in Excel: A Step-by-Step Guide

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Duration: 6:33
Submitted: 7 months ago
Views: 219

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Description:

Do you want to learn how to calculate compound interest in Excel? It's a useful skill to have, and in this article we will show you how to do it.

Table of Content;

00:00 INTRODUCTION

00:40 Compound Interest In Excel

06:00 conclusion

What is Compound Interest?

Compound interest is the interest that is earned on an investment that has been reinvested, and it can result in significantly higher earnings over time.

In Excel, it can be calculated using the PPMT and IPMT functions. We will walk you through the steps of how to use these functions so that you can calculate compound interest for yourself.

How to Calculate Compound Interest?

When it comes to saving money, one of the most important concepts to understand is compound interest. Compound interest is when you earn interest on top of your original investment and your previous interests. This can result in a much larger return over time than if you just earned simple interest on your investment.

In order to calculate compound interest in Excel, you need to know two things:

  • the principal amount
  • the annual interest rate

The principal is how much money you are starting with, while the annual interest rate is how much your investment will earn each year.

Once you have these two pieces of information, it's easy to calculate compound interest in Excel. Just follow these simple steps in the video.

Can we Calculate Compound Interest Without Excel?

While Excel is a great tool for calculating compound interest, you don't actually need to use a computer in order to do it. You can also calculate compound interest using a simple pencil and paper or you can browse different tool online to calculate it.

All you need to do is draw yourself a table like the one below, which will help you track your investment's progress over time. Then, once you have filled in all of the information, you can simply calculate the compound interest using a basic mathematical equation.

Compound interest = (PV * ((1 + I n) ^) - PV) / (i * n)

Where:

PV = Present Value

I n = Annual Interest Rate compounded annually

n = number of periods Compound interest is the interest that is earned on an investment that has been reinvested, and it can result in significantly higher earnings over time. In Excel, it can be calculated using the PPMT and IPMT functions. We will walk you through the steps of how to use these functions so that you can calculate compound interest for yourself.

When it comes to saving money, one of the most important concepts to understand is compound interest. Compound interest is when you earn interest on top of your original investment and your previous interests. This can result in a much larger return over time than if you just earned simple interest on your investment.

How to Calculate Compound Interest in Excel?

In Excel, compound interest can be calculated using the simple excel equations as we described above with the help of the Compound interest Mathematical equation.

To calculate compound interest, we need the following data:

- The Present Value (PV) which is how much money you are starting with.

- The Annual Interest Rate (I n) which is how much your investment will earn each year.

- The number of periods (n) over which the calculation will be made.

Once you have these values, the calculation is simple:

= (PV * (((I n) ^) - PV)) / (i * n)

Where "^" indicates the power function.

For example, if you want to calculate compound interest for a period of five years with an annual interest rate of five percent, the equation would look like this:

= (PV * (((.05) ^) - PV)) / (.05 * 60)

In this example, the compound interest for the five-year period is $52.51.

Conclusion

Compound interest is an important concept to understand when it comes to saving money. By using Excel or another tool to calculate compound interest, you can get a better understanding of how your investments are growing over time. And, with a little bit of practice, you'll be able to do the calculations in your head!