New answers tagged compound-interest
2
As far as I can tell (more info here https://www.gov.uk/guidance/how-interest-is-calculated-plan-2 ) interest on Plan 2 student loans is calculated daily and compounded monthly.
This means on Day 1 they calculate 1/365 of the annual interest rate on the amount you currently owe. Remember this number, but don't do anything else with it yet.
On Day 2 they do ...
-1
Would it be correct to use the formula: FV(20, 12, 1000, -10000)
EDIT: both you and I overlooked percentage. The first parameter should be 20% not 20.
Yes. (I'd write the formula as -FV(20%/12, 12, 1000, 10000). Mathematically they are identical, and I interpret -10000 as a negative amount of money. However, maybe trained analysts use -10000 and I'm the ...
1
I use Excel's built-in =RRI() function: "Returns an equivalent interest rate for the growth of an investment."
In your case, =RRI(73,10000,11000) = 0.13065% compound growth per day. Multiply that by 365 to get 47.69% CAGR.
Then I verified that with =10000*(1+0.13065%)^73, the answer to which is $11,000.02`.
2
Yes, the difference between the two formulas is based on whether the investment is compounding or not. Your first link states this:
Take note that the effective annualized rate will depend on how often the interest compounds.
For example, if you buy a stock that pays a 5% dividend and each quarter you withdraw and spend it for living expense, your ROI ...
8
No, he's correct. The interest rate is not 0.5% per YEAR, it's 0.5% per MONTH.
His point is that he's comparing getting 6% paid at one time at the end of the year, versus 6% nominal annual rate paid monthly. So he takes 6% / 12 = 0.5%. That's where the 0.5% comes from.
If it was 0.5% nominal annual rate, then your formula would be correct. But it's not 0.5% ...
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