Implied Compound Interest?

  • Thread starter Thread starter dazman
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dazman

Hi,

I've just checked all the Excel Compound Interest functions but I can’t
seem to find the exact one for calculating implied compound interest.

I have a starting value of an investment and an ending value, together
with the number of years it’s been invested. I’m looking for a function
that can tell me the smoothed implied compound growth per year– Sorry if
I’ve missed an obvious one but can anyone help?

Thanks,

Daz
 
Hi,

I've just checked all the Excel Compound Interest functions but I can’t
seem to find the exact one for calculating implied compound interest.

I have a starting value of an investment and an ending value, together
with the number of years it’s been invested. I’m looking for a function
that can tell me the smoothed implied compound growth per year– Sorry if
I’ve missed an obvious one but can anyone help?

Thanks,

Daz
Click to expand...

I believe the XIRR function will do what you want.

The inputs including the starting and ending dates of the period, along with
the cash in/out. Be sure to observe the proper sign conventions as outlined in
HELP.

Also note that the Analysis ToolPak must be installed. HELP has directions for
that, too.
--ron
 
dazman said:
I've just checked all the Excel Compound Interest functions
but I can’t seem to find the exact one for calculating implied
compound interest.
Click to expand...

As near as I can tell, the term "implied compound interest"
rate is simply the average interest rate -- the geometric
mean rate of return. If you have another meaning in mind,
please define the term as you are using it.
I have a starting value of an investment and an ending value,
together with the number of years it’s been invested. I’m
looking for a function that can tell me the smoothed implied
compound growth per year
Click to expand...

Given those parameters, the average growth rate per period
can be computed by either of the following:

=RATE(n,, -PV, FV)

=(FV/PV)^(1/n) - 1

where PV is the starting value, FV is the ending value, and
n is the number of compounding periods.
 
Thank apolagies for the late reply , athough I couldn't get =RATE(n,,
-PV, FV) to work, =(FV/PV)^(1/n) - 1 did the trick nicely. Most useful
for inestment spreadsheets.:)
 
dazman said:
although I couldn't get =RATE(n,,-PV, FV) to work,
=(FV/PV)^(1/n) - 1 did the trick nicely.
Click to expand...

I am glad that one of them worked, but RATE() should
have worked, too. Did you notice the double comma ",,"
(missing optional parameter) and the minus sign "-"
before "PV", but not before "FV"?

For example:

=RATE(12,,-1000,2000)

is about 6%, confirming the "rule of 72". We get the
same result with

=(2000/1000)^(1/12) - 1

Of course, it does not matter which formula you use.
If you like the exponential form, to each his own. I
just want to be sure that you understand the RATE()
syntax. I am sure it will prove equally useful in the
future.
 
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