Calculation Of Compound Interest
FV Formula breakdown:
=FV(rate, nper, pmt, [pv])
The explanation for the formula breakdown:
=FV(interest rate, number of periods, periodic payment, initial amount)
Imagine that you turn 18 years today and your parents told you that they have deposited an amount in their bank account for you since you were born. They said that you are now 18 so you eligible to collect that money and spend it within one day.
Now the question which arises here that How much would be available for you to spend? Currently.
So, thanks to Excel that it has an easy way to calculate this with its FV formula.
FV: Future Value.
The future value (FV) is the value of a current asset based on an assumed rate of growth over time at a specified date in the future.
Here for my example, I have the table of values that I need to get the compound interest or FV from:
Following are the mentioned steps to find the FV:
STEP 1: Firstly, you need to enter the FV function in a blank cell of your Excel sheet:
STEP 2: Now continue with the FV arguments:
here at the place of “rate” you need to write: What is the rate of the interest?
So, for this select the cell containing the interest rate but before that ensure that this is in a percentage:
here in the place of “nper” you need to mention that How many periods there are?
So, for that select the cell which contains the number of years:
for “pmt” you need to mention that What is the periodic payment?
I have no periodic payment there is only an initial amount, so here I’ll put 0:
To mention “pv” you need to write What is the initial amount?
PV: Present Value
It means the initial amount. You will need to change PV amount to a negative value by multiplying -1 because a negative value will be treated like as “money out” for your investment in Excel.
=FV(B2, C2, 0, A2 * -1)
Now by dragging the lower right corner downwards apply the same formula to the rest of the remaining cells.
There you with the compound interest result so, SPEND it and have fun.