Investing - Compound Interest
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Investing - Compound Interest

by Zahra
(BRISBANE, AUSTRALIA)

if i place a number other than '1' into the first cell, i get an incorrect value in an another cell. What value should be in that cell? what is an excel formula that will ensure all values are correct regardless of the starting year?






Compound Interest
Interest Rate 5.65%
Principal $4,800.00
Rests per Year(n) 365

Time (year) Principal ($) Yearly Interest Total Interest
5 $6,366.78 $1,566.78 $1,566.78
2 $5,374.19 -$992.60 $574.19
3 $5,686.54 $312.36 $886.54
4 $6,017.06 $330.51 $1,217.06
5 $6,366.78 $349.72 $1,566.78
6 $6,736.83 $370.05 $1,936.83
7 $7,128.39 $391.56 $2,328.39
8 $7,542.71 $414.32 $2,742.71
9 $7,981.10 $438.40 $3,181.10
10 $8,444.98 $463.88 $3,644.98
11 $8,935.82 $490.84 $4,135.82
12 $9,455.19 $519.37 $4,655.19
13 $10,004.74 $549.55 $5,204.74
14 $10,586.24 $581.50 $5,786.24
15 $11,201.53 $615.29 $6,401.53
16 $11,852.58 $651.06 $7,052.58
17 $12,541.48 $688.90 $7,741.48
18 $13,270.42 $728.94 $8,470.42
19 $14,041.72 $771.30 $9,241.72
20 $14,857.85 $816.13 $10,057.85
21 $15,721.42 $863.57 $10,921.42
22 $16,635.18 $913.76 $11,835.18
23 $17,602.05 $966.87 $12,802.05
24 $18,625.12 $1,023.07 $13,825.12
25 $19,707.64 $1,082.53 $14,907.64
26 $20,853.09 $1,145.45 $16,053.09
27 $22,065.12 $1,212.02 $17,265.12
28 $23,347.58 $1,282.47 $18,547.58
29 $24,704.59 $1,357.01 $19,904.59
30 $26,140.47 $1,435.88 $21,340.47




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Investing - Compound Interest

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Sep 01, 2011
Rating
starstarstarstarstar 		Investing - Compound Interest
by: Staff


The question:

by Zahra
(BRISBANE, AUSTRALIA)


if i place a number other than '1' into the first cell, i get an incorrect value in an another cell. What value should be in that cell? what is an excel formula that will ensure all values are correct regardless of the starting year?


Compound Interest
Interest Rate 5.65%
Principal $4,800.00
Rests per Year(n) 365

The answer:

I’m glad you’re using Excel to solve this kind of a problem. A spread sheet is great for viewing every time period.

As you know, excel does not provide a standard function to compute compound interest.

Therefore, you must create your own. The compound interest formula will be in your textbook, but here it is:

INV =PV*(1+R)^N

INV = Value of Investment at the end of the nth time period

PV = present value of the investment at time zero
PV = the original investment = $4800

R = interest rate for each time period N
(The interest rate R is COMPOUNDED DAILY for your problem)
R_annual_percent_form = the 5.65%
(5.65% must be converted to a decimal value)
R_annual_decimal_form = 5.65%/100 = .0565
(the annual interest rate in decimal form must be converted to a daily interest rate in decimal form)
R_daily_decimal_form = .0565/365 days (I didn’t divide these two numbers. Instead I put .0565/365 directly into the excel formula)
R_daily_decimal_form = .0565/365

N = time period in days = Time in years * 365 days per year


Here is a summary of the values which you should use in the compound interest formula:

PV = 4800
R = .0565/365
N = years * 365

INV =PV*(1+R)^N

INV =4800*(1+.0565/365)^( years*365)


Your Excel spreadsheet can be set up like this:

. . . . . . .Col 1 . . Col 2 . . . .Col 3 . . . . . . Col 4. . . . . .Col 5

Row 1 . years . . days . Principle ($) . . Yearly Int . . Total Int
(titles)

Row 2 . . . 0 . .(blank) . . . . 4800 . . . . . . . .0 . . . . . . . . 0
(values at time zero)

Row 3 . . . 1 . =R3C1*365. . =4800*(1+0.0565/365)^R3C2 . . =R3C3-R2C3 . . =R2C5+R3C4
(excel formulas to compute the values at the end of year 1)

Row 4 . . . 2 . =R4C1*365. . =4800*(1+0.0565/365)^R4C2 . . =R4C3-R3C3 . . =R3C5+R4C4
(excel formulas to compute the values at the end of year 2)

Row 5 . . . 3 . =R5C1*365. . =4800*(1+0.0565/365)^R5C2 . . =R5C3-R4C3 . . =R4C5+R5C4
(excel formulas to compute the values at the end of year 3)

Row 6 . . . 3 . =R6C1*365. . =4800*(1+0.0565/365)^R6C2 . . =R6C3-R5C3 . . =R5C5+R6C4
(excel formulas to compute the values at the end of year 4)

.
.
.


(1) Click the following link to VIEW a snapshot of the excel spreadsheet computations; or (2A) highlight and copy the link, then (2B) paste the link into your browser Address bar & press enter:

Use the Backspace key to return to this page:

http://www.solving-math-problems.com/images/Comp_Int_Table_2011-09-01.png



Thanks for writing.

Staff
www.solving-math-problems.com



Sep 02, 2011
Rating
starstarstarstarstar 		compound interest
by: Zahra

it asks to:
construct a similar spreadsheet showing the $4800 at 5.65% over 12 years suing simple interest.

my answer:

Simple Interest
Principal $4,800.00
Interest Rate 5.65%
Time 12

Time (year) Interest ($) Total Interest
1 $271.20 $5,071.20
2 $542.40 $5,342.40
3 $813.60 $5,613.60
4 $1,084.80 $5,884.80
5 $1,356.00 $6,156.00
6 $1,627.20 $6,427.20
7 $1,898.40 $6,698.40
8 $2,169.60 $6,969.60
9 $2,440.80 $7,240.80
10 $2,712.00 $7,512.00
11 $2,983.20 $7,783.20
12 $3,254.40 $8,054.40




Now the question is:

Place a number other than '1' into A7 (=time:1st year)

a) identify the cell which has an incorrect value in it.
b) what value should be in that cell?
c) write an excel formula that will ensure all values are correct regardless of the starting year.


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