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Back calculating compound interest...
In Excel, the principal is in A1 and the amount of interest paid in one year
is in A2. Interest is calculated and added to the account daily and the number of interest periods (365) is in A3 How do I calculate in A4 the rate of compound interest on the account? |
#2
Posted to microsoft.public.excel.misc
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Back calculating compound interest...
"Jake" wrote:
In Excel, the principal is in A1 and the amount of interest paid in one year is in A2. Interest is calculated and added to the account daily and the number of interest periods (365) is in A3 How do I calculate in A4 the rate of compound interest on the account? Use either of the following equivalent formulas to compute the __daily__ interest rate: =RATE(365,0,-A1,A1+A2) or =(1+A2/A1)^(1/365)-1 formatted as Percentage. The RATE expression usually works. But sometimes, RATE returns a #NUM error, indicating that it requires a "guess" parameter. Since it is usually difficult to guess, the second formula is more reliable. However, interest is usually stated as an __annual__ rate. So the daily rate should be "annualized". In the US, the annual "interest" rate (not APY) is stated as a "simple" rate. So multiply the formula in A4 by 365. In the EU and UK (and perhaps elsewhere), the annual rate is a "compound" rate. Although that can be calculated from the daily rate, in your case it is simply A2/A1, formatted as Percentage. The latter is also the APY in the US. |
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