Calculating Compunded interest

lindabea

Hi Everyone,

Question to all you clever mathematicians - can someone please give me the formula for calculating compond interest. I'd like to know how to calculate the balance on a sum invested say for 5 years at a given ROI. I can of course do it in Excel, but I seem to recall learning it at school, but I cannot remember now to save my life.

Many thanks

carnet

The way I would do it is get a calculator, key in the ROI (eg if 4%, key in 1.04), double click the X button, key in the sum involved (say £1000) then hit the = button once for each year (eg 1.04 XX 1000 ===== is £1216.65 over 5 years).

Don't know how mathematically precise this is but its always been good enough for me .

grumbler

(1+ROI)^5

Here ROI is in decimal notation, i.e. ROI=ROI%/100%, 0.05 for 5% for example.

General formula is (1+ROI)^N, where N is number of years.

1000*(1+0.04)^5=1216.65


P.S. for regular investments look here: compound interest-how do I work it out?

lindabea

Thank you Carnet and Grumbler - that's the formula I wanted. I remember it from my school days now!! And Carnet - I like that double XX business on a calculator. I never knew you could do that on a calculator. What a clever useful site this is.