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What is compound interest? How do you calculate compound interest in Excel? In this article, we will answer these questions and provide a step-by-step guide on how to do it.

Compound interest is one of the most powerful financial tools available to investors. By understanding how to calculate compound interest, you can make sound investment decisions that could potentially lead to increased profits down the road!

Assume you invest $300,000 in a bank and the interest rate is 8 percent per year. How much will your investment be worth after one year if the annual interest rate is 8%?

The value of your investment after one year would be $316,000. This is because the interest you earn in the first year (0.08*$300,000=$24,000) is added to your initial investment amount ($300,000), and then this new total earns interest for a second year. Thus, the $316,000 value reflects the total amount of money you would have if you left your investment alone for two years.

Traditionally the mathematical equation of Compound interest is;

A = P( ( (I) n / 100 ) - (P*I) / 100 )

Where:

A= the future value of the investment, including interest earned to date

P= the principal amount invested

I= annual interest rate as a decimal number

n= number of years for which interest is compounded

Now that we understand the basics of compound interest, let's take a look at how to calculate it in Excel.

There are two ways you can do this: using the PMT function or the RATE function. In this example, we will use the PMT function.

To begin, enter your principal amount (P), annual interest rate (I), and number of years for which the interest will be compounded (n) into cells A, B, and C, respectively.

Next, in cell D, enter the following formula:

=PMT(B$0,-C$0,,A$0)

This function calculates the monthly payment for an investment. If you'd like to see the yearly payment, you can divide the monthly payment by 12 (cell D$0/$12).

Finally, copy the cell D formula all the way down until it reaches row 100. This will give you a table of results that looks something like this:

Principal Amount (P) Annual Interest Rate (I) Number of Years for which the interest will be compounded (n) Monthly Payment (D$0) Yearly Payment (D$0/$12)

300,000 0.08 25 $-2262.50 $-18,584.17

Now that we have our table of results, let's take a look at how to interpret it.

In the first row, we can see that if you invest $300,000 in a bank at an annual interest rate of 0.08 for 25 years, your monthly payment will be $-2262.50. The yearly ... https://www.youtube.com/watch?v=zzIPYh7Lq8M