The spreadsheet below is a savings
It works out nominal and effective interest rates. You have to know
your initial investment which amounts to a known total (final or
future) value in a specified period of time.
Interest Rate is
based on the following formula:
Interest Rate is calculated by the following formula:
Note that the number of
compounding periods per year is not needed to
calculate the effective interest rate.
P = initial investment
T = future value
N = number of compounding periods per year
Y = number of years
i = nominal interest rate
= effective interest rate
Hegel invests the modest amount of $10,000 in a savings bank. Five
years later his investment amounts to only $16,200. What is the
effective interest rate offered by his bank? If interest is compounded
monthly, what is the nominal interest rate offered?
This is a job for our very useful savings interest calculator... We
just have to fill in the blanks...
Investment = 10,000
years = 5
Compounding periods / yr = 12
and the results are
Interest rate = 9.687%
Interest rate = 10.129%
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