Compound interest calculation

  • Thread starter Thread starter Ira Hayes
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Ira Hayes

I think my bank has been underpaying me interest on a 5 year certificate of
deposit.

How can I calculate the interest I should be getting on, say, $2,500 for a
five year term at 6.77% and show how much interest accrues at year one, year
two, etc.?

Ike
 
Would you care to share the name of the institution that's providing that
*very* good interest rate?<g>
--

Regards,

RD
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I think my bank has been underpaying me interest on a 5 year certificate of
deposit.

How can I calculate the interest I should be getting on, say, $2,500 for a
five year term at 6.77% and show how much interest accrues at year one, year
two, etc.?

Ike
 
The CD is 5 years old at this point and maturing soon-- so that rate is long
gone!

Ike
 
One way:

Assuming yearly interest payments:

=FV(6.77%,n,0,-2500)-FV(6.77%,(n-1),0,-2500)

where n is the year.

If interest is compounded more frequently, adjust the interest rate and
term accordingly. For instance, with quarterly compounding:

=FV(6.77%/4, n*4, 0, -2500) - FV(6.77%/4, (n-1)*4, 0, -2500)
 
Thanks for the response.

I guess I'm just a dumb Excel newbie but I plugged that formula into a cell
and it returns #NAME?

So what am I doing wrong?

Ike
 
Ira said:
I think my bank has been underpaying me interest on a 5 year certificate of
deposit.

How can I calculate the interest I should be getting on, say, $2,500 for a
five year term at 6.77% and show how much interest accrues at year one, year
two, etc.?

Ike
Click to expand...

First, I am assuming CD is calculate using compound interest, not simple
interest.

Here is the simple answer. The formual for compound interest is:

A=(P+R)^n where A=future amount P=original principal R=rate
n=compounding period. eg at year 1 n= and your formula is
(2500*.0677)^1= 2669.25, year 2 = (2669.25*.0677)^2, and so on.

Your answer is:

Year principal rate interest future
earned amount
1 $2,500.00 0.0677 $169.25 $2,669.25
2 $2,669.25 0.0677 $180.71 $2,849.96
3 $2,849.96 0.0677 $192.94 $3,042.90
4 $3,042.90 0.0677 $206.00 $3,248.90
5 $3,248.90 0.0677 $219.95 $3,468.86


if the CD is based on simple interest, you interest is $169.25 each year.
 
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