Formula for compounding Interest

  • Thread starter Thread starter John Hornblow
  • Start date Start date
J

John Hornblow

Hi
Is ISPMT the correct formula for caluclation what compounding
investment will earn?


Eg $10,000 invested for 6 months, interest paid (compounded) quartily
at 7.5%

Cheers
John
 
Hi
Is ISPMT the correct formula for caluclation what compounding
investment will earn?


Eg $10,000 invested for 6 months, interest paid (compounded) quartily
at 7.5%

Cheers
John
Click to expand...


No matter what formula you use, you need to express the interest rate in terms
of the rate per compounding period. In your example, that would be 7.5%/4.

In general, the formula for the value of the investment after some amount of
time:

=PV * (1 + Annual_Rate / Pmts_per_year) ^ Num_of_Pmts

In your instance:

= 10000 ^ (1 + 7.5% / 4) ^ 2
= $10,378.52

So the interest paid after six months would be $378.52


--ron
 
On Sat, 23 Aug 2003 06:47:02 -0400, Ron Rosenfeld


Thanks for that,
Is the Num_of_Pmts (2) due to it being a 6 monthly investment ?
Thankyou
 
Back
Top