Compound Interest

This tutorial shows how to calculate compound interest in Excel

Excel

Compound Interest with FV function

Excel

Compound Interest with general formula

EXCEL FORMULA 1. Compound Interest with FV function

EXCEL

Compound Interest

=FV(C5/C6,C7*C6,0,-C4)

GENERIC FORMULA

=FV(rate, nper, -pmt, -pv)

ARGUMENTS
rate: An interest rate per period.
nper: Number of payment periods.
pmt: An additional payment that is made each period. This must be entered as a negative number.
pv: The present value of the investment. This must be entered as a negative number.

EXPLANATION

This formula uses the FV function to calculate the compound interest, based on the selected parameters, and return the future value of an investment.

This function is driven by the present value of an investment, interest rate, number of periods and periodic payment. Given that we don't have the periodic interest rate, we calculate this by using the annual interest rate and divide it by the number of periods per year.

In this example the formula calculates the future value, with compounded interest, by using the initial investment (present value), annual interest rate, compounding periods per year and the term (in years) that you are calculating for.

EXCEL FORMULA 2. Compound Interest with general formula

EXCEL

Compound Interest

=C4*(1+C5/C6)^(C6*C7)

GENERIC FORMULA

=pv*(1+rate/n)^(term*n)

ARGUMENTS
rate: An interest rate per period.
pv: The present value of the investment.
term: The duration of the investment.
n: The compounding periods per year (number of periods).

EXPLANATION
This is the general formula for calculating the future value of an investment, with compounding interest. It uses the present value of an investment, interest rate, number of periods and duration of the investment.