Formula for figuring compound interest

  • Thread starter Thread starter Msnews.Microsoft.Com
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Msnews.Microsoft.Com

Hi,
I need a formula for figuring out a retirement saving plan for my Grandson.
He wants to start by depositing $250.00 initial investment and adding
$50.00 per month for 40 years. If he earns 5.0% interest compounded monthly
how much will he have in 40 years? Any help with this formula will be
greatly appreciated. Thanks. Starlin
 
Hi Starlin,

Try this

=-FV(0.05/12,40*12,50,250,0)

This uses the future value formula in excel and FV is defined as:

FV(rate,nper,pmt,pv,type)

Rate is the interest rate per period. here 5% / 12 (or 0.05 / 12)

Nper is the total number of payment periods in an annuity. here 40 X 12

Pmt is the payment made each period; it cannot change over the life of the
annuity. Typically, pmt contains principal and interest but no other fees or
taxes. here $500

Pv is the present value, or the lump-sum amount that a series of future
payments is worth right now. If pv is omitted, it is assumed to be 0 (zero),
and you must include the pmt argument. Here $250

Type is the number 0 or 1 and indicates when payments are due. If type is
omitted, it is assumed to be 0.

Set type equal to If payments are due
0 At the end of the period
1 At the beginning of the period

This I assume to be 0 the first payment is made at the end of the first month

The formula works on balances so just put a -ve infront of the formula.
 
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