Compound Interest

[RickS]

I see the formula for calculating annually compounded interest. Is there a
function formula for daily compounding of interest?

RickS

 

[Tim879]

Try using the rate function and setting the nper = 360 or 365
(depending on how many days you want to use).

 

[RickS]

Thanks Tim, are you suggesting I do this with the NPER or PV formulas? But
where do I put the 360 basis, in the formula as described in Excel Help?
Which component is the basis? NPER(rate, pmt, pv, fv, type)


RickS

 

[Bernie Deitrick]

Rick

You need to use the annual rate divided by the number of periods. For example, with a 5% annual
rate

Annual:
=FV(0.05,1,0,1000,1)

Monthly:
=FV(0.05/12,12,0,1000,1)

Daily:
=FV(0.05/365,365,0,1000,1)

All the financial functions work the same general way.

HTH,
Bernie
MS Excel MVP

 

[RickS]

thank you very much for the clarification

 

[Brad]

There are some instances were (1.05^(1/365)-1) is the correct interest rate
to be used - it all depends if you are dealing wth nominal or effective
interest rates.

Granted that .05/365 is used in more cases than what I posted - but one
needs to know which rate to use...