Formulae for Compound Interest
Content
Corporate Finance
Simplified calculation
Formulae are presented in greater detail at time value of money. In the formula below, i is the effective interest rate per period. FV and PV represent the future and present value of a sum. n represents the number of periods. These are the most basic formulas:
The above calculates the future value (FV) of an investment's present value (PV) accruing at a fixed interest rate (i) for n periods.
The above calculates what present value (PV) would be needed to produce a certain future value (FV) if interest (i) accrues for n periods.
The above calculates the compound interest rate achieved if an initial investment of PV returns a value of FV after n accrual periods.
The above formula calculates the number of periods required to get FV given the PV and the interest rate (i). The log function can be in any base, e.g. natural log (ln), as long as consistent bases are used all throughout calculation.
Simplified calculation
Formulae are presented in greater detail at time value of money. In the formula below, i is the effective interest rate per period. FV and PV represent the future and present value of a sum. n represents the number of periods. These are the most basic formulas:
The above calculates the future value (FV) of an investment's present value (PV) accruing at a fixed interest rate (i) for n periods.
The above calculates what present value (PV) would be needed to produce a certain future value (FV) if interest (i) accrues for n periods.
The above calculates the compound interest rate achieved if an initial investment of PV returns a value of FV after n accrual periods.
The above formula calculates the number of periods required to get FV given the PV and the interest rate (i). The log function can be in any base, e.g. natural log (ln), as long as consistent bases are used all throughout calculation.
