Introduction
Compound interest is a key topic in Introduction to Business Finance. I thought I knew it but got confused when applying the formulas. I built a simple Excel sheet to figure it out.
Background
I was mixing up periods and compounding frequency. The formulas looked simple, but the results did not match my expectations.
Link to Guide: Time Value of Money Explained
Key Points
The formula FV = PV(1+r)^n confused me about what n actually represents.
I misunderstood quarterly vs annual compounding at first.
Building a table with year, beginning balance, interest, and ending balance helped me see the growth.
The Excel FV function made calculations faster once I got the arguments right.
I kept forgetting absolute references and had to fix many errors.
Comparing simple interest and compound interest side by side cleared a lot.
Testing different rates showed how sensitive the results are.
I understood present value better after adding that calculator too.
Key Takeaway
Compound interest finally clicked after I built the Excel sheet. I was stuck on the periods and frequency part for a while. Now I understand why small changes in rate or time make big differences. I still need more practice with different scenarios.
Check my Latest Post on Excel Skills that Every Accounting and Fiannce Student Needs
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