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Reader Question: How Do You Calculate Compound Growth (or Interest)?
By JLP | November 19, 2007
Frank left the following comment in my Turning $1,000 Into $1,000,000 Post:
Great information! Can you publish your formula for these tables? I would love to know what’s going to happen if I put $2000– or $5000 per year into my retirement fund.
Certainly, Frank!
I simply used the RATE function in Excel, which is found in the functions menu under the Insert tab. The formula will require you to input some information but it’s fairly easy to use.
You can see an illustration of formula by downloading the Turning $1,000 Into $1,000,000 spreadsheet (Download) that I put together when writing the post. Once you have downloaded the spreadsheet, save it and then open it in Excel. Once you have it open in Excel, simply click on one of the cells in the Required ROR column and then click on “Insert Function” under the Insert menu on main menu in Excel. As soon as you do that, a function box should open that looks like this:
NOTE: Should you get an error message in the cell after you use the formula, it might be necessary to add a “guess” for Excel to use in making the calculation. For some reason the formula dialogue box does not contain an area for a guess. However, you can add in the formula bar like this:
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The number “20″ in the formula represents my guess of 20%. NOTE: Although my example doesn’t show it, be sure and close out the formula with paranthesis.
I hope this was straight-forward and easy to understand. If you have any questions, either leave a comment or shoot me an email.
Topics: Financial Math Basics, Investing |