Microsoft Office Tutorials and References
In Depth Information
Calculating interest with continuous compounding
The term continuous compounding refers to interest that is accumulated continuously. In other words, the in-
vestment has an infinite number of compounding periods per year. The following formula calculates the future
value of a $5,000 investment at 4.25% compounded continuously for three years:
=5000*EXP(4.25%*3)
The formula returns $5,679.92, which is an additional $0.04 compared with daily compounding.
You can calculate compound interest without using the FV function. The general for-
mula to calculate compound interest is
Principal*(1+Periodic Rate)^Number of Periods
For example, consider a five-year, $5,000 investment that earns an annual interest rate of 4%, compoun-
ded monthly. The formula to calculate the future value of this investment is
=5000*(1+4%/12)^(12*5)
Interest Rate
Rule of 72
Actual
1%
72.00
69.66
2%
36.00
35.00
3%
24.00
23.45
4%
18.00
17.67
5%
14.40
14.21
6%
12.00
11.90
7%
10.29
10.24
8%
9.00
9.01
9%
8.00
8.04
10%
7.20
7.27
15%
4.80
4.96
20%
3.60
3.80
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