Compound interest calculation
 

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

How can I calculate the interest I should get on, say, $2,500 for a five
year term and show how much interest accrues at certain intervals?

Ike

Ira,

It depends on frequently the interest is paid. The formula to calculate a
Future value is:

FV = PV*(1+i/m)^(m*T)

Whe

FV = Future value
i = interest
m = number of times interest is paid in a year
T = number of years

So the future value of USD 2500 for five years (accumulated once a year) is
given by (at a rate of, say, 10%:

FV = 2500*(1+0,1)^5= USD 4,026.28

Using the FV function in Excel you get =FV(0.1,5,,-2500). If interest is
paid more often, divide the interest by the number of times it is paid and
multiply the period (Nper) by this number to proportionate the interest. For
example, if interest is paid monthly:

=2500*(1+0.1/12)^(12*5) = USD 4,113.27

or

=FV(0.1/12,5*12,,-2500) = USD 4,113.27

I hope it helps. Without knowing the characterists of the CD, it is
difficult to determine its exact value, but the above should help you to have
a better idea...

Regards,
Robert

*

Thanks!

Ike


"cmart02" wrote in message
...
Ira,

It depends on frequently the interest is paid. The formula to calculate a
Future value is:

FV = PV*(1+i/m)^(m*T)

Whe

FV = Future value
i = interest
m = number of times interest is paid in a year
T = number of years

So the future value of USD 2500 for five years (accumulated once a year)
is
given by (at a rate of, say, 10%:

FV = 2500*(1+0,1)^5= USD 4,026.28

Using the FV function in Excel you get =FV(0.1,5,,-2500). If interest is
paid more often, divide the interest by the number of times it is paid and
multiply the period (Nper) by this number to proportionate the interest.
For
example, if interest is paid monthly:

=2500*(1+0.1/12)^(12*5) = USD 4,113.27

or

=FV(0.1/12,5*12,,-2500) = USD 4,113.27

I hope it helps. Without knowing the characterists of the CD, it is
difficult to determine its exact value, but the above should help you to
have
a better idea...

Regards,
Robert

*