Compound Interest is a crucial part of financial computation that so many of us utilize on a regular basis. Excel has a financial function to calculate the compound interest rate. In this article, we will create a quarterly compound interest calculator in Excel.
What is Compound Interest?
You can earn interest on your money when you invest it. Earning or paying the interest on money is referred to as compound interest. Actually, compound interest is interest earned from an investment. The generic formula for compound interest is:
Where FV is the future value, PV is the present value, r is the interest rate per period, and n is the number of compounding periods.
How to Compute Compound Interest in Excel?
To calculate compound interest, excel has a built-in function called the FV function. The FV function evaluates the future value of an investment using a constant interest rate as one of the financial functions. The syntax of the function is FV(rate, nper, pmt, [pv], [type]). Let’s have a look at the calculation of compound interest in excel.
The below example assumes that a $5,000 investment is made for ten years at a 5% annual interest rate, compounded monthly. By using the formula below, we get the compound interest paid monthly.
Here, C5 is the interest rate, C6 is compounding periods per year, C7 is the terms in the year, and C8 is the present value of the investment.
Quarterly Compound Interest Generic Formula
To calculate the quarterly compound interest we must calculate interest four times a year. Each quarter’s interest will be added to the principal for the upcoming quarter. The formula for determining the quarterly compound interest.
Creating Quarterly Compound Interest Calculator in Excel
Creating a quarterly compound interest calculator will help to work faster. By using this calculator you are able to find the compound interest in quarters. All you need to do is just put the input value of yours and it will automatically show the result in the resulting cell.
Step 1: Dataset Introduction
For example, let’s just take a look at the following dataset. The dataset contains some information about a banking investment. The dataset has a principal amount of $10,000, an annual interest rate of 5%, and a total year of investment which is 10. Now we want to calculate the future amount which is mainly our quarterly compound interest.
Step 2: Inserting Excel Formula for Quarterly Compound Interest Calculator
We already know about the formula for finding the quarterly compound interest in the above section of the article. So now we are going to put the formula of quarterly compound interest in our resulting cell. Let’s follow the steps to get a clear idea of how the formula works.
- Firstly, select the resulting cell. So we are selecting cell C9.
- Secondly, write the formula there.
Here, cell C5 indicates the principal amount, cell C6 represents the annual interest rate, and cell C7 denotes the total years of investment.
- Finally, press Enter.
Step 3: Final Output of Quarterly Compound Interest Calculator in Excel
- By pressing Enter the result will show in the resulting cell, in our case the cell is C9. As a result, the future amount will show in cell C9 which is $12,820.
- And that’s it. We are successfully creating a calculator and now we can calculate the quarterly compound interest.
Step 4: Getting Output with New Values
Now if you change the value, the result will also change. As we change the total years of investment the value decreases. So, you can modify the value as per the requirements.
Download Practice Workbook
You can download the workbook and practice with them.
The above steps will assist you to create a quarterly compound interest calculator in Excel and I Hope this will help you! If you have any questions, suggestions, or feedback please let us know in the comment section.