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  • Calculating compound interest
  • Jakester
    Free Member

    Help a man out, if you will.

    I’m currently dealing with an agreement whereby interest on a principal sum is to be charged at 2.5% per month, compounded.

    To me, that means that in the first month, one calculates 2.5% of the principal sum; in the second month, one adds that 2.5% from the first month to the principal sum and then calculates 2.5% of the resulting amount; and so forth ad infinitum.

    However, I’ve been struggling to come up with an excel formula to do it for me which I freely admit is down to my own ineptitude.

    All the online formulas/calculators require an annual interest rate, with interest to be compounded monthly based on that rate. I’ve come up with something like 34% p/a – does that sound right?

    I could do it manually but there are several years’ worth of payments to calculate across a number of different principal sums, so automation would be preferred…

    IHN
    Full Member

    The formula you want is:

    Amount outstanding = Principal x (1.025 ^ the number of months)

    where ^ = ‘to the power of’

    **edit – assumes the money is not being paid back at all in that time period

    twicewithchips
    Free Member

    Long column, fill down. each cell = 102.5% of the one above it?
    There may be a better way, I’m pretty sure there’s a formula.

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    jimdubleyou
    Full Member
    twicewithchips
    Free Member

    as I suspected 🙂
    do it their way, especially now I’ve read the last bit of your post properly!

    martinhutch
    Full Member

    http://www.stoozing.com/calculator/apr-rate-converter.php

    goes in both directions. Your 34ish% is about right.

    Jakester
    Free Member

    Perfect, thank you all.

Viewing 7 posts - 1 through 7 (of 7 total)

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