Formula for compounding Interest

[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

 

[Ron Rosenfeld]

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

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

 

[John Hornblow]

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