Compare effect of compounding periods

To compare the effect of (non-annual) compounding periods on growth, you can set up a worksheet as shown, and calculate future value with the FV function. In the example shown, $1000 is invested with an annual interest rate of 5%, the formulas in column D calculate the future value of the $1000 assuming the compounding periods shown in column C. The formula in D5, copied down, is: =FV(rate/C5,C5*term,0,-pv) where pv (G4), rate (G5), and term (G6) are named ranges.

April 14, 2025 · 1 min · 86 words · Melinda Pierce

Explanation

The FV function calculates compound interest and returns the future value of an investment over a specified term.

To configure the function, we need to provide a rate, the number of periods, the periodic payment, and the present value:

By convention, the present value (pv) is input as a negative value, since the $1000 “leaves your wallet” and goes to the bank during the term.

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FV Function

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Excel FV function

Explanation#

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Calculate compound interest#

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Annual compound interest schedule#

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FV Function#