How do I set up a formula to compound interest on a monthly basis?
The amount would be 10,000 and the interest rate would be 2%.
Is that the annual interest rate? Or is that the annual percentage
yield? Or is that the monthly rate?
Typically, it is the annual interest rate. The formula to compound
interest monthly is:
=B1*(1+2%/12)
where B1 is the previous balance. If the above formula is in B2, you
can copy it down.
More compactly, if you want the ending balance after compounding
interest for a number of months in A1:
=fv(2%/12, A1, 0, -B1)
Note: Those formulas compute ending balances; that is, they __apply__
the compound interest rate. If that is not what you want, please
clarify. "How to compound interest" is ambiguous.
If 2% is the APY, the monthly rate is RATE(12,0,-1,1+2%). Substituted
that (or a cell reference) for "2%/12" above.
