Microsoft KB Archive/42111

Works: Compound Interest Calculation

PSS ID Number: Q42111 Article last modified on 10-22-1998

1.00 1.05 2.00 3.00 | 2.00 3.00

MS-DOS WINDOWS

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The information in this article applies to:

 Microsoft Works versions 1.x, 2.0, 3.0 for MS-DOS Microsoft Works versions 2.0, 3.0 for Windows == Microsoft Works versions 4.0, 4.5, 4.5a for Windows 95 == 

= SUMMARY =

The FV function in Microsoft Works can be used to determine the future value of multiple cash flows of equal value, as in an annuity. However, Microsoft Works does not contain a built-in function for the calculation of compound interest of a single cash flow, such as a savings account deposit. Examples in the next section show the formula required for calculating interest compounded annually, monthly, and continuously of a single cash flow.

= MORE INFORMATION =

An example of the use of a compound-interest formula would be the investment of $5,000.00 in a savings account paying 7 percent interest compounded once each year. At the end of ten years, the value of the account will be $9,835.76, based upon the following formula:

FV = PV * (1+RATE)^NPER

In the above formula, FV, PV, RATE and NPER are simply variables and do not refer to the functions of the same name. To calculate the future value of the investment, replace the variable names with the actual numbers or spreadsheet cell references, as follows:

FV = Future Value = ? PV = Present Value = $5,000.00 RATE = Interest Rate = .07 NPER = Number of Periods = 10

Resulting formula: =5000*(1+.07)^10

The same formula can be used with different values for monthly compounding of interest. The annual interest rate would be divided by 12 to give the RATE and the NPER would be equal to the number of months. Monthly compounding results in a future value of $10,048.31.

If interest is compounded continuously, a different formula is applied, as follows:

FV = PV * EXP(1)^(RATE*NPER)

This formula results in a balance of $10,068.76.

The first formula can also be used with the FV formula to calculate a periodic investment with an initial lump sum investment.

Using the same example as above, making an annual investment of $200 would be calculated using the following formula:

FV = PV * (1+RATE)^NPER + FV(PAYMENT,RATE,NPER)

PAYMENT = Deposit per Period = $200.00

Resulting formula: =5000*(1+.07)^10+FV(200,.07,10)

This formula results in a balance of $12,599.05.

Additional query words: 1.00 1.05 2.00 3.00 4.00

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========================================================= Version : 1.00 1.05 2.00 3.00 | 2.00 3.00 Platform : MS-DOS WINDOWS ============================================================================= Copyright Microsoft Corporation 1998.