Compound interest with monthly contributions

Hello Everyone,
I am trying to write a formula to calculate compound interest with monthl contribution, here is what I need:
Lets say my starting amouint is $2501.28
And I add $208.44 monthly
For 10 years
At 0.75% interest yearly
The answer is $28,619
But when I try =FV(0.75%,10,-2501.28,-208.44,1) in excel
I get $26292.76

Can someone tell me what I am doing wrong?

Thank you for Your help,
Josh

Hi CGI,

You have to normalised the value. Either change everything to Monthly or Yearly.
If you want to calculate on yearly basis, Interest is 0.75%, monthly contribution is $208.44*12, Period stays the same at 10.

However if you are going to calculated on monthly basis, Interest is 0.75%/12, Monthly contribution is $208.44 and Year should be 10*12.


Hope that helps.

Cheers

I still can't get it to work correctly, for some reason it won't factor in the money made from interest each month or factor in the monthly deposits correctly.

Originally Posted by cgi2099

Lets say my starting amouint is $2501.28
And I add $208.44 monthly
For 10 years
At 0.75% interest yearly
The answer is $28,619
But when I try =FV(0.75%,10,-2501.28,-208.44,1) in excel
I get $26292.76
Can someone tell me what I am doing wrong?

The correct formula is one of the following:

=FV(0.75%/12,10*12,-208.44,-2501.28,1)
or
=FV((1+0.75%)^(1/12)-1,10*12,-208.44,-2501.28,1)

The difference depends on whether 0.75% is an annual (simple) interest rate (first formula) or an annual yield (compounded rate; second formula).

Also note the reversal of the -208.44 (pmt) and -2501.28 (pv) parameters.

However, those formulas return about $28,678.51 and $28,674.42 respectively, not $28,619.

If FV should return $28,619, the annual rate is about 0.712634% or 0.714967% respectively.

Originally Posted by joeu2004

However, those formulas return about $28,678.51 and $28,674.42 respectively, not $28,619.
If FV should return $28,619, the annual rate is about 0.712634% or 0.714967% respectively.

You neglected to mention the compounding frequency. It might be annual, monthly or daily. If monthly, the rate might be annual/12 or (1+annual)^(1/12)-1. If daily, the rate might be annual/365 or annual/360.

Note that if the daily rate were (1+annual)^(1/365)-1 or (1+annual)^(1/360)-1, the FV is the same as a monthly rate of (1+annual)^(1/12)-1.

Allowing for the possibility that your numbers are rounded -- so the annual rate is 0.745% to 0.755%, the monthly contribution is $208.435 to $208.445, and the initial balance is $2801.275 to $2801.285 -- the FV is $28,665.87 and $28,772.65, considering all of the possible compounding frequencies.

Again, nothing close to $28,619 [sic].

And if the FV is $28,618.50 and $28,619.50, allowing for rounding, the annual rate is 0.711925% to 0.715681% for monthly and daily compounding.

Again, nothing close 0.75% [sic].

And with annual compounding, the annual rate is very much less.

On the other hand, if you meant to write $28,691 and the FV is $28,690.50 to $28,691.50, allowing for rounding, the annual rate is 0.757122% to 0.761180% for monthly and daily compounding

That is close to 0.75%, if you truncated instead of rounding.

With annual compounding, the annual rate is 0.706806% to 0.708134%.

So, do you have a typo in requirements? And are your numbers rounded or truncated?