## Compare effect of (non-annual) compounding periods on growth

This article will talk about how to calculate the trend or effect of future value changes for different compounding periods in a Microsoft Excel spreadsheet or Google Sheets via a formula.

## What is the period of compound interest?

The compounding period is the time interval at which the bank calculates the interest rate on unpaid cash and usually corresponds to the payment period, but not necessarily so.

The payment period is the time interval over which payments are made. The size of the periodic payments on a given loan is related to the interest rate and the length of the loan term. The longer it takes the borrower to pay off the loan, the more interest he/she will pay to the bank. In addition, the more often a borrower makes annual payments to the bank to reduce the outstanding balance (e.g., monthly rather than annually), the less interest he/she will have to pay over the entire repayment period. When the borrower and lender agree on the loan amount, interest rate and loan term, it is easy to calculate the amount to be repaid in each installment.

## What is FV?

Future value (FV), also known as future value, is the value of a certain amount of money at some point in the future. It is usually recorded as FV.

Example: The ultimate value of simple interest formula.

• FV: Future value;
• PV: Present value;
• Rate: Interest rate (discount rate);
• Periods: The number of periods for calculating interest

## Calculation of the future value

The formula for calculating the future value of simple interest is as follows:

` FV = PV * (1 + n * i)`

The formula for compound interest future value is as follows:

`FV=PV * (1 + i)n`

## General Formulas in Excel / Google Sheets

You can use the following general formula in Excel or Google Sheets to calculate the future value of an investment based on a constant interest rate, as follows

`=FV(rate,nper,pmt,[pv],[type])`

The syntax of the FV function has the following parameters.

•  Rate – This is a mandatory parameter, which is the interest rate per period.
• Nper – This is a mandatory parameter, the total number of annuity payment periods.
• Pmt – This is a mandatory parameter, the amount of each payment; it cannot be changed during the lifetime of the annuity. Normally, pmt includes the principal and interest, but not other fees or taxes. If pmt is omitted, the pv parameter must be included.
• Pv  – This is an optional parameter, final or future value. If pv is omitted, it is assumed to be 0 (zero) and you must include the pmt parameter.
• Type – This is an optional parameter with a number of 0 or 1, indicating the time of payment. If type is omitted, it is assumed to be 0.

## Example

For the worksheet shown above, we can use the FV function to calculate the future values for different compounding periods so that we can clearly see the impact of compounding periods on growth. Through the data table, we can see that the initial value is 5000, its annual investment rate is 7.5%, the Periods column is the different compounding periods, and then we can calculate the future value PV of 5000 by using the FV function, you can enter the following formula in cell C3 of the Excel or google worksheet.

`=FV(F3/B3,B3*F4,0,-F2)`

## Formula explanation

Let’s explain how the above general formula works. The FV formula is used in Microsoft Excel or Google Sheets to calculate compound interest and return the future value of an investment over a specified period. To use this formula, then you need to provide some necessary parameters, such as: interest rate, number of periods, present value, etc.

For the above example.

Present value is cell F3.

The interest rate is determined by dividing the annual interest rate value by the number of periods, i.e. F3/B3

The number of compounding periods is the value of the terms multiplied by the number of periods, i.e. F4*B3

With these parameter values above, we can calculate the future value of the different periods.

## Q&A

1. How do I calculate compound interest in Excel with different rates？

A more efficient way to calculate compound interest in Excel is to apply the general interest formula: FV=PV(1+r)n, where FV is the future value, PV is the present value, r is the interest rate per period, and n is the number of periods of compound interest.

2. What will be the effect if the compounding period is increased?

Increasing the number of compounding periods increases the effective annual interest rate compared to the nominal rate.

3. Which is better compounded monthly or annually?

Due to compounding, the annual interest rate is usually a higher rate. Instead of monthly payments, the amount invested has a 12-month increase. However, if you can get the same interest rate for monthly payments as for annual payments, then take it.

## Calculate Compound Interest in Excel

This article will show you how to calculate compound interest in Excel. It will help you calculate the interest you will accrue on a given amount of money. There are several ways to calculate compound interest. One of the simplest is using the FV function. This function determines the future value of an investment. When calculating the future value of an investment, the FV function takes some arguments, the rate and the periodic payment, and the present value. The rate will determine how much interest is applied to payments made at the beginning of the period. If payments are made monthly, quarterly, or yearly, the FV function will return the future value of the investment.

## What is Compound Interest?

Compound interest is a wonderful thing, especially if you’re looking to grow your savings. In this article we’ll explain what it means and how much better off our lives would be with some extra cash in the bank! So, create a new spreadsheet and enter the interest formulas you’d like to calculate to get started.

Compound interest is a financial tool that can make long-term investments more lucrative. In simple terms, it is interest earned on the principal plus interest. This cycle repeats itself to increase the value of the investment at maturity. Learning more about compounding can make your money work for you.

Compound interest is an important part of building wealth. Without the proper knowledge, it’s easy to get overwhelmed with debt. You could be drowning in debt in a few years if you don’t track compound interest. However, by learning how to calculate compound interest, you’ll be able to avoid costly mistakes and maximize your money. We’ll discuss how to calculate interest rates below.

## Generic Formula:

`=FV(rate,nper,pmt,pv)`

### Summary:

The FV function is used to calculate the future value of an investment based on the interest rate, the number of payments, and the period. The arguments used to compute the value of an investment are rate, period, nper, pmt, PV, and type. The FV function also allows you to change these inputs as required. For example, you can change the payments from beginning to end or at the end of a year. The formula in C10 is as follows:

`=FV(B3/B5,B4*B5,0,-B2)`

### Syntax:

• Rate: Period rate
• NPER: Number of periods
• Pmt: Periodic payment
• PV: present value.

### Summing up:

In addition to calculating the interest on a loan, compound interest is an important tool in the financial world. It can help you manage your savings account and invest effectively. While compound interest can be a powerful force, it is also difficult for those who do not understand how it works. You can use the FV function for this purpose. You will be able to determine the future value of your savings based on the amount you initially put into them.

### Related Functions

• Excel FV function
The Excel FV function used to calculate the future value of an investment based on a constant interest rate. The syntax of the FV function is as below:=FV(rate,nper,pmt,[pv],[type])

## Excel FV Function

This post will guide you how to use Excel FV function with syntax and examples in Microsoft excel.

### Description

The Excel FV function used to calculate the future value of an investment based on a constant interest rate. So you can use the FV function to get the future value of an investment with either periodic, constant payments.

The FV function is a build-in function in Microsoft Excel and it is categorized as a Financial Function.

The FV function is available in Excel 2016, Excel 2013, Excel 2010, Excel 2007, Excel 2011 for Mac.

### Syntax

The syntax of the FV function is as below:

`=FV(rate,nper,pmt,[pv],[type])`

Where the FV function arguments are:

• Rate -This is a required argument. The interest rate per period.
• Nper– This is a required argument. The total number of payment periods for the annuity.
• Pmt– This is a required argument. The amount of the payment made each period. And if the Pmt argument is omitted, it will set as the default value 0.
• Pv – This is an optional argument. The present value of the payments. And if the PV argument is omitted, it will be set the default value as 0.
• Type – This is an optional argument. It indicates when the payments are due. And if the type argument is omitted, it will be set as 0.  And the Type argument can have two value 0 or 1.
 Set type equal to If payments are due 0 At the end of the period 1 At the beginning of the period

Note:

• The units for rate and nper should be consistent. If you make monthly payments on a four-year loan at 12 percent annual interest, and you should use 12%/12 for rate and 4*12 for nper. If you make annual payments on the same loan, you need to use 12% for rate and 4 for nper.
• For all the arguments, cash you pay out, such as deposits to savings, is represented by negative numbers; cash you receive, such as dividend checks, is represented by positive numbers.

### Excel FV Function Examples

The below examples will show you how to use Excel FV Function to calculate the future value of an investment with a constant interest rate.

#1 to get the future value of an investment, using the following formula:

`= FV (B1/12,B2,B3,B4,B5)`

### Related Functions

• Excel IPMT Function
The Excel IPMT function used to calculate the interest payment for an investment based on a constant payment schedule and a constant interest rage.The syntax of the IPMT function is as below:= IPMT (rate, per, nper, pv, [fv], [type])…
• Excel IRR Function
The Excel IRR function returns the internal rate of return for a series of cash flows and the cash flows must be occurred at regular intervals (monthly or annually).The syntax of the IRR function is as below:=IRR(values, [guess])…
• Excel ISPMT Function
The Excel ISPMT function used to calculate the interest paid during a specific period of an investment.The syntax of the ISPMT function is as below:= ISPMT (rate, per, nper, pv)…
• Excel MIRR Function
The Excel MIRR function returns the modified internal rate of return for a series of cash flows and the cash flows must be occurred at regular intervals (monthly or annually). The syntax of the MIRR function is as below:=MIRR(values, finance_rate,reinvest_rate)…
Excel NPER Function
The Excel NPER function returns the number of periods for an investment or loan based on periodic payment amount and a constant interest rate.The syntax of the NPER function is as below:= NPER (rate, pmt, pv, [fv], [type])…
• Excel NPV Function
The Excel NPV function returns the net present value of an investment by using a discount rate and a series of future cash flows (future payments and income).The syntax of the NPV function is as below:= NPV (rate, Value1,[value2],…)…
• Excel PMT Function
The Excel PMT function returns the payment amount for a loan or investment based on constant payments and a constant interest rate.The syntax of the PMT function is as below:= PMT(rate, nper, pv,[fv],[type])…
• Excel PPMT Function
The Excel PPMT function returns the payment amount on the principal for a given period for a loan or investment based on constant payments and a constant interest rate. The syntax of the PPMT function is as below:=PPMT(rate, per,nper, pv,[fv],[type])…
• Excel RATE Function
The Excel RATE function returns the interest rate per payment period of an annuity.The syntax of the RATE function is as below:=RATE(nper, pmt,pv,[fv],[type],[guess])…
• Excel PV Function
The Excel PV function returns the present value of a loan or investment based on constant payments and a constant interest rate. So you can use the PV function to get the present value based on a series of future payments.The syntax of the PV function is as below:= PV(rate,nper,pmt,[fv],[type])…