Section 1

Connect

 

Going Beyond

 

You can use the power of spreadsheets to calculate compound interest. Here is one way to set up such a spreadsheet.

 

Step 1: Copy the information from the image below onto your spreadsheet. This information shows an investment of $2000 invested for five years at 6% compounded semi-annually. You will be able to change the data easily to fit most situations.

 

© Microsoft Corporation. All Rights Reserved. Used with permission from Microsoft Corporation.

 

Step 2: Enter formulas for the interest rate per period and the total number of periods. Also, number the periods in Column A.

• In Cell B7, enter =$B$4/$B$. Format this cell for %.
• In B8, enter =$B$5*$B$6.
• In A11, enter 1.
• In A12, enter =A11+1.
• Highlight cells A12 to A20 and select Fill Down.

© Microsoft Corporation. All Rights Reserved. Used with permission from Microsoft Corporation.

 

Step 3: Enter the values and calculations for the first two interest periods into the noted cells.

• In B11, enter =$B$3.
• In C11, enter =B11*$B$7.
• In D11, enter =B11+C11.
• In B12, enter = D11.
• In C12, enter =B12*$B$7.
• In D12, enter =B12+C12.

© Microsoft Corporation. All Rights Reserved. Used with permission from Microsoft Corporation.

 

Step 4: Complete the table. Highlight cells B12 to D20. Then, from the Calculate menu, select Fill Down.

 

© Microsoft Corporation. All Rights Reserved. Used with permission from Microsoft Corporation.

 

Now, you can use your spreadsheet to solve most compound interest problems simply by entering the new data in cells B3 to B6. Everything else will update automatically. You will have to fill down the appropriate number of periods.

 

Use your spreadsheet to find the amount of an investment of $10 000 invested at 6% and compounded quarterly for two years.

 

Project Connection

You are now prepared to begin working on Step 3, the compound interest portion of the Section 1 Project: Capturing Your Interest!

 

Make sure to save all your project work in your course folder to submit at the end of Section 1.

 

Lesson 2 Assignment