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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:

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 | 12 Comments »


12 Responses to “Reader Question: How Do You Calculate Compound Growth (or Interest)?”

  1. Fox Cutter Says:
    November 20th, 2007 at 12:38 pm

    From the look of the dialog box I suspect you need to use the scroll bar (that’s poorly placed) to get to ‘guess’.

  2. JLP Says:
    November 20th, 2007 at 1:59 pm

    Fox Cutter,

    I didn’t even see that! Thanks for mentioning that.

  3. Jon Says:
    November 21st, 2007 at 8:54 am

    If anybody wants a method that will work on a simple calculator, try this:

    Calculate how much money it would take for the growth alone to equal your annual contribution. For instance, if you want to add $2000 per year, and assume 12% growth, 2000/0.12 = 16666.66.

    Now use the simple compounding interest formula to calculate the growth for however long you want. For instance, after 20 years you will have 16666.66 * 1.12^20 = 160771.48.

    Finally, subtract out the original seed money to get the actual amount you will have. To conclude the example, 160771.48 – 16666.66 = 144104.82.

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    November 23rd, 2007 at 6:19 am

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  10. Brad Calkins Says:
    December 14th, 2007 at 3:55 pm

    I have a question that I’m having trouble getting the answer correct…I’m trying to see the formula as to how they came up with the answer to the following question.

    If you save $10 per week in a savings account that pays 6% interest compounded yearly how much money would be in your account in 3 years. The answer supposedly is $1703..

  11. Keith Says:
    December 20th, 2007 at 7:04 am

    I have a math problem that I am having a problem with” Grow $100 monthly deposits for 30 yrs @12% compounded continuously. I need to run this on a excel spreadsheet. Which I can do using a Marco but what is the formula to run this ?

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