As part of our Mathematics courses in our childhood, we had learned about Compounded Interest. The famous formula which we remember is
Compounded Balance = Principal x (1+rate)^N
This is a fairly easy job to do in Excel. The formula to be used is FV.
Excel help describes FV as "Returns the future value of an investment based on periodic, constant payments and a constant interest rate".
The syntax of FV is FV(rate,nper,pmt,[pv],[type])
You require only 3 pieces of information for Compounded Balance.
rate: Interest rate on which compounding needs to be done
nper: Total number of periods for which compounding needs to be done. Now rate and nper should be on the same scale. If interest rate is monthly, then nper should be in months. If interest rate is quarterly, then nper should be in quarter. If interest rate is annual, then nper should be in years.
pv: This is the initial principal and it has to be specified in -ve. (Note, I have already discussed significance of +ve and -ve in many previous tips on Financial Functions.)
The formula used in below picture for Monthly
=FV(B1/12,B3*12,0,-B2)
The formula used in below picture for Quarterly
=FV(F1/4,F3*4,0,-F2)
The formula used in below picture for Yearly
=FV(J1,J3,0,-J2)
The Compounded Balance Calculator can be downloaded from Compounded Interest Calculator
