Expert Verified By: David Chen, CFA | Financial Analysis Specialist
Master your investment planning with our compound return calculator excel tool. This professional-grade module replicates complex Excel financial functions to help you project long-term wealth growth, calculate annualized returns, and visualize the power of compounding.
Compound Return Calculator Excel
Compound Return Calculator Excel Formula
FV = P(1 + r)^t + PMT × [((1 + r)^t – 1) / r]
Formula Source: Investopedia – Compound Return | Wikipedia – Financial Math
Variables:
- P (Initial Investment): The starting amount of money deposited into the account.
- PMT (Annual Contribution): The additional amount added to the investment at the end of each year.
- r (Annual Rate): The annual interest rate (expressed as a decimal in the formula).
- t (Time): The total number of years the money is invested.
- FV (Future Value): The total value of the investment at the end of the term.
Related Calculators
What is a Compound Return Calculator Excel?
A compound return calculator excel is a specialized financial tool designed to simulate the “FV” function found in Microsoft Excel. Unlike simple interest, compound return calculates earnings on both the initial principal and the accumulated interest from previous periods.
In the context of professional investing, this represents the geometric progression of returns. Using this tool allows investors to understand the long-term impact of varying interest rates and consistent contributions on their retirement or savings goals.
How to Calculate Compound Return (Example)
- Identify your initial principal ($10,000).
- Determine your annual growth rate (e.g., 8% or 0.08).
- Define the time horizon (5 years).
- Apply the exponent: (1 + 0.08)^5 = 1.4693.
- Multiply by principal: $10,000 * 1.4693 = $14,693.28.
Frequently Asked Questions (FAQ)
What is the difference between simple and compound return? Simple interest is calculated only on the principal, while compound return includes interest earned on interest.
Does this calculator handle monthly compounding? This specific version uses annual compounding for clarity, which is the standard for long-term stock market projections.
Is the annual contribution added at the start or end of the year? This calculation assumes contributions are added at the end of each period (Ordinary Annuity).
How do I find the rate required to double my money? You can use the “Rule of 72” by dividing 72 by your expected annual interest rate.