Course outline / Financial functions
Lesson 69 of 75 · Advanced · 4 exercises
Interest rates compared
Simple and compound interest, and comparing quoted rates.
What you'll practise
- Simple interest
- Compound growth
- The real yearly rate with EFFECT
- Back to the quoted rate with NOMINAL
Simple interest
Simple interest is paid on the original amount only: deposit times rate times years.
In cell D2, work out the simple interest on B1 at B2 for B3 years.
Compound growth
With compound interest, interest earns interest. After n years a deposit grows to:
=deposit * (1 + rate) ^ years
In cell D2, work out what B1 grows to at B2 compounded yearly for B3 years.
The real yearly rate with EFFECT
A rate of 12% a year paid monthly is really 1% a month, compounded, which is worth more than 12%. EFFECT gives the true yearly rate.
=EFFECT(quoted rate, times per year)
In cell D2, find the effective rate of B2 compounded B4 times a year.
Back to the quoted rate with NOMINAL
NOMINAL does the reverse: from an effective rate to the quoted one.
In cell D2, find the quoted rate that gives an effective 12.68% with monthly compounding: NOMINAL(EFFECT(B2,B4), B4).
Try it in a real spreadsheet
Every step checks your answer instantly and tells you exactly what to fix.