compound intrest calcs

  • Thread starter Thread starter davidbrowne17
  • Start date Start date
D

davidbrowne17

i seem to have fogoton my o level maths ( well it was 20 years ago!)

can someone let me know how to caluculate the % Inrease / year if th
starting figure was £ 120,000 ( year 1)
and the end figure is now £ 186,000 ( year 4)

- i need to know what the % Compund intrest / year was, its aroun
11.5% but what's the correct way to work this forumular?

Thanks
 
Let interest be x per annum

120000 times x to the power of 4 = 18600
x to the power 0f 4 = 186/120 = 1.5
x = fourth root of 1.55 = 1.11579118

100 times (1.115791181 - 1) = interest per annum = 11.57

Check: 120000 times (1.11579) to the power of 4 is 185999.2125 (the difference is rounding)

If I were an actuarial type, I might have offerred a formula. I am sure someone will!
 
Hi!

Formula is:
=(186000/120000)^(1/4)-1
Returns: 11.5791181090294%

In general terms:
=(FV/PV)^(1/NPER)-1

This is a re-expression of the general compounding formula:

FV=PV(1+RATE)^NPER

You can also use the RATE function:
=RATE(4,0,-120000,186000,0,0)
Returns: 11.5791181090294%

Note that with the Excel financial functions you need to use a money
flow sign convention.
--
Regards
Norman Harker MVP (Excel)
Sydney, Australia
(e-mail address removed)

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