Implied Compound Interest?

[dazman]

Hi,

I've just checked all the Excel Compound Interest functions but I can’t
seem to find the exact one for calculating implied compound interest.

I have a starting value of an investment and an ending value, together
with the number of years it’s been invested. I’m looking for a function
that can tell me the smoothed implied compound growth per year– Sorry if
I’ve missed an obvious one but can anyone help?

Thanks,

Daz

 

[Ron Rosenfeld]

Hi,

I've just checked all the Excel Compound Interest functions but I can’t
seem to find the exact one for calculating implied compound interest.

I have a starting value of an investment and an ending value, together
with the number of years it’s been invested. I’m looking for a function
that can tell me the smoothed implied compound growth per year– Sorry if
I’ve missed an obvious one but can anyone help?

Thanks,

Daz

I believe the XIRR function will do what you want.

The inputs including the starting and ending dates of the period, along with
the cash in/out. Be sure to observe the proper sign conventions as outlined in
HELP.

Also note that the Analysis ToolPak must be installed. HELP has directions for
that, too.
--ron

 

[joeu2004]

I've just checked all the Excel Compound Interest functions
but I can’t seem to find the exact one for calculating implied
compound interest.

As near as I can tell, the term "implied compound interest"
rate is simply the average interest rate -- the geometric
mean rate of return. If you have another meaning in mind,
please define the term as you are using it.

I have a starting value of an investment and an ending value,
together with the number of years it’s been invested. I’m
looking for a function that can tell me the smoothed implied
compound growth per year

Given those parameters, the average growth rate per period
can be computed by either of the following:

=RATE(n,, -PV, FV)

=(FV/PV)^(1/n) - 1

where PV is the starting value, FV is the ending value, and
n is the number of compounding periods.

 

[dazman]

Thank apolagies for the late reply , athough I couldn't get =RATE(n,,
-PV, FV) to work, =(FV/PV)^(1/n) - 1 did the trick nicely. Most useful
for inestment spreadsheets.

 

[joeu2004]

although I couldn't get =RATE(n,,-PV, FV) to work,
=(FV/PV)^(1/n) - 1 did the trick nicely.

I am glad that one of them worked, but RATE() should
have worked, too. Did you notice the double comma ",,"
(missing optional parameter) and the minus sign "-"
before "PV", but not before "FV"?

For example:

=RATE(12,,-1000,2000)

is about 6%, confirming the "rule of 72". We get the
same result with

=(2000/1000)^(1/12) - 1

Of course, it does not matter which formula you use.
If you like the exponential form, to each his own. I
just want to be sure that you understand the RATE()
syntax. I am sure it will prove equally useful in the
future.