CompoundInterestλ() calculates accumulated principal plus compounded interest based on APR, compounding frequency per year, and years invested or borrowed. CompoundInterestλ uses this formula:
=Principal * ( 1 + (AnnualRate / PeriodsPerYear)) ^ (PeriodsPerYear * Years)
Benefit:
Packaging difficult to remember formulas into functions prevents errors due to remembering incorrectly or mistyping the formula.
Example
Below we are borrowing 10,000 at an APR of 8%. We want to know how much principle plus interest we will owe given different compounding intervals and years held.
At the bottom, we enter our function, CompoundInterestλ(), and provide its inputs: Principle, Annual Rate, Compounding Periods Per Year, and Years. As we make changes to Compounding Periods Per Year and Years, our function projects the principal plus interest.
At the top is a compounding corkscrew that we can use to test CompoundInterestλ(). The function is calculating correctly when values highlighted in light copper match, which they do.
CompoundInterestλ( Principal, AnnualRate, PeriodsPerYear, Years)
Principal
(Required) Amount invested or borrowed
AnnualRate
(Required) Annual percentage rate (enter as a percentage)
PeriodsPerYear
(Required) Number of compounding periods per year
Years
(Required) Number of years invested or borrowed.