Discrete Annual Compound Interest

Interest Rate
Year

Cash Balance
0 1,000.00
1
2
3
4
5
6
7
8
9
10

Note: This discrete annual compound interest example is from Simon Benninga, Principles of Finance with Exce
Oxford University Press (2011) pp. 683-693

ciples of Finance with Excel, Second Edition

Excel uses standard "PEMDAS" order of operations for arithmetic

"Parentheses, Exponents, Multiplication and Division, and Addition and
Parentheses
Exponents - use caret
Multiplication - use asterisk
Division - use slash
Addition
Subtraction

"(6-3)"
"^"
"*"
"/"
"+"
"-"

Assume we want (6-3)(4+2) = 18

=6-3*4+2
Assume we want (3/5) squared
=(3/5)^2

(for example, "six squared" is

ns for arithmetic
ion, and Addition and Subtraction"

ple, "six squared" is "6^2"; "square root of six" is "6^(.5)")

A
1
2
3
4
5
6
7
8
9
10
11
12

natural log
"ln"

Example
log to the base "e" of 1.5

log to the base 2 log to the base 2 of 1.5

"log(number, base)"
pi
"pi()"

1 divided by the square root of pi

random number between 0 and 1

"=rand()"

Adjusted monthly closing prices (from Yahoo finance)

Date
8/1/14
7/1/2014
6/2/2014
5/1/14
4/1/2014
3/3/2014
2/3/2014
1/2/2014
12/2/2013
11/1/2013
10/1/2013
9/3/2013
8/1/2013
7/1/2013
6/3/2013
5/1/2013
4/1/2013
3/1/2013
2/1/2013
1/2/2013
12/3/2012
11/1/2012
10/1/2012
9/4/2012
8/1/2012
7/2/2012
6/1/2012
5/1/2012
4/2/2012
3/1/2012
2/1/2012
1/3/2012
12/1/2011
11/1/2011
10/3/2011
9/1/2011
8/1/2011
7/1/2011
6/1/2011
5/2/2011
4/1/2011
3/1/2011

S&P 500 Index

Duke Energy Stock

1925.15
72.94
1930.67
72.13
1960.23
74.19
1923.57
71.08
1883.95
73.68
1872.34
70.45
1859.45
70.11
1782.59
69.09
1848.36
67.51
1805.81
68.44
1756.54
69.41
1681.55
64.62
1632.97
63.48
1685.73
67.95
1606.28
64.6
1630.74
64.05
1597.57
71.2
1569.19
68.73
1514.68
65.57
1498.11
64.37
1426.19
59.74
1416.18
59.76
1412.16
60.76
1440.67
59.92
1406.58
59.91
1379.32
61.98
1362.16
63.26
1310.33
60.3
1397.91
58.11
1408.47
56.98
1365.68
56.73
1312.41
57.12
1257.6
58.97
1246.96
55.88
1253.3
54.07
1131.42
52.93
1218.89
50.07
1292.28
48.56
1320.64
49.16
1345.2
48.95
1363.61
48.08
1325.83
46.79

2/1/2011
1/3/2011
12/1/2010
11/1/2010
10/1/2010
9/1/2010
8/2/2010
7/1/2010
6/1/2010
5/3/2010
4/1/2010
3/1/2010
2/1/2010
1/4/2010
12/1/2009
11/2/2009
10/1/2009
9/1/2009
8/3/2009
7/1/2009
6/1/2009
5/1/2009
4/1/2009
3/2/2009
2/2/2009
1/2/2009
12/1/2008
11/3/2008
10/1/2008
9/2/2008
8/1/2008
7/1/2008
6/2/2008
5/1/2008
4/1/2008
3/3/2008
2/1/2008
1/2/2008
12/3/2007
11/1/2007
10/1/2007
9/4/2007
8/1/2007
7/2/2007
6/1/2007

1327.22
1286.12
1257.64
1180.55
1183.26
1141.2
1049.33
1101.6
1030.71
1089.41
1186.69
1169.43
1104.49
1073.87
1115.1
1095.63
1036.19
1057.08
1020.62
987.48
919.32
919.14
872.81
797.87
735.09
825.88
903.25
896.24
968.75
1166.36
1282.83
1267.38
1280
1400.38
1385.59
1322.7
1330.63
1378.55
1468.36
1481.14
1549.38
1526.75
1473.99
1455.27
1503.35

46.38
45.47
45.29
44.63
45.7
44.44
43.11
42.32
39.59
39.49
40.94
39.81
39.89
39.74
41.38
40.1
37.47
37.29
36.69
36.11
34.03
33
31.68
32.85
30.9
34.23
33.91
35.16
36.47
38.81
38.83
38.64
38.2
40.62
39.78
38.78
38.1
40.04
43.3
42.49
40.69
39.67
38.93
35.72
38.39

5/1/2007
4/2/2007
3/1/2007
2/1/2007
1/3/2007
12/1/2006
11/1/2006
10/2/2006
9/1/2006
8/1/2006
7/3/2006
6/1/2006
5/1/2006
4/3/2006
3/1/2006
2/1/2006
1/3/2006
12/1/2005
11/1/2005
10/3/2005
9/1/2005
8/1/2005
7/1/2005
6/1/2005
5/2/2005
4/1/2005
3/1/2005
2/1/2005
1/3/2005
12/1/2004
11/1/2004
10/1/2004
9/1/2004
8/2/2004
7/1/2004
6/1/2004
5/3/2004
4/1/2004
3/1/2004
2/2/2004
1/2/2004
12/1/2003
11/3/2003
10/1/2003
9/2/2003

1530.62
1482.37
1420.86
1406.82
1438.24
1418.3
1400.63
1377.94
1335.85
1303.82
1276.66
1270.2
1270.09
1310.61
1294.87
1280.66
1280.08
1248.29
1249.48
1207.01
1228.81
1220.33
1234.18
1191.33
1191.5
1156.85
1180.59
1203.6
1181.27
1211.92
1173.82
1130.2
1114.58
1104.24
1101.72
1140.84
1120.68
1107.3
1126.21
1144.94
1131.13
1111.92
1058.2
1050.71
995.97

40.99
42.6
42.13
40.86
40.46
39.66
37.88
37.4
35.7
35.46
35.46
34.35
33.01
33.69
33.73
32.86
32.44
31.41
30.74
29.94
32.99
32.78
33.4
33.62
31.08
32.68
31.36
30.22
29.69
28.08
28.02
26.9
25.1
24.28
23.28
21.97
21.59
22.49
24.13
23.45
22.91
21.56
19.02
18.84
18.49

8/1/2003
7/1/2003
6/2/2003
5/1/2003
4/1/2003
3/3/2003
2/3/2003
1/2/2003
12/2/2002
11/1/2002
10/1/2002
9/3/2002
8/1/2002
7/1/2002
6/3/2002
5/1/2002
4/1/2002
3/1/2002
2/1/2002
1/2/2002
12/3/2001
11/1/2001
10/1/2001
9/4/2001
8/1/2001
7/2/2001
6/1/2001
5/1/2001
4/2/2001
3/1/2001
2/1/2001
1/2/2001
12/1/2000
11/1/2000
10/2/2000
9/1/2000
8/1/2000
7/3/2000
6/1/2000
5/1/2000
4/3/2000
3/1/2000
2/1/2000
1/3/2000

1008.01
990.31
974.5
963.59
916.92
848.18
841.15
855.7
879.82
936.31
885.76
815.28
916.07
911.62
989.82
1067.14
1076.92
1147.39
1106.73
1130.2
1148.08
1139.45
1059.78
1040.94
1133.58
1211.23
1224.38
1255.82
1249.46
1160.33
1239.94
1366.01
1320.28
1314.95
1429.4
1436.51
1517.68
1430.83
1454.6
1420.6
1452.43
1498.58
1366.42
1394.46

17.73
17.93
20.39
19.8
17.68
14.62
13.58
16.81
19.29
19.49
19.93
19.02
26.1
24.54
29.94
30.82
36.63
36.12
33.73
33.06
37.22
34.27
36.16
35.64
37.01
36.09
36.46
42.73
43.43
39.7
37.85
33.74
39.33
41.49
39.62
39.31
34.29
28.05
25.63
26.49
25.9
23.65
21.85
25.75

30.00%

20.00%

10.00%

f(x) = 0.4862708207x + 0.0050536106

R = 0.1112460823

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%
0.00%

-10.00%

-20.00%

-30.00%

5.00%

10.00%

15.00%

-30.00%

-40.00%

Monthly continuously compounded (log) returns

S&P 500 Index

Duke Energy Stock

-0.29%
-1.52%
1.89%
2.08%
0.62%
0.69%
4.22%
-3.62%
2.33%
2.77%
4.36%
2.93%
-3.18%
4.83%
-1.51%
2.06%
1.79%
3.54%
1.10%
4.92%
0.70%
0.28%
-2.00%
2.39%
1.96%
1.25%
3.88%
-6.47%
-0.75%
3.09%
3.98%
4.27%
0.85%
-0.51%
10.23%
-7.45%
-5.85%
-2.17%
-1.84%
-1.36%
2.81%
-0.10%

1.12%
-2.82%
4.28%
-3.59%
4.48%
0.48%
1.47%
2.31%
-1.37%
-1.41%
7.15%
1.78%
-6.80%
5.06%
0.86%
-10.58%
3.53%
4.71%
1.85%
7.46%
-0.03%
-1.66%
1.39%
0.02%
-3.40%
-2.04%
4.79%
3.70%
1.96%
0.44%
-0.69%
-3.19%
5.38%
3.29%
2.13%
5.55%
3.06%
-1.23%
0.43%
1.79%
2.72%
0.88%

3.15%
2.24%
6.33%
-0.23%
3.62%
8.39%
-4.86%
6.65%
-5.54%
-8.55%
1.47%
5.71%
2.81%
-3.77%
1.76%
5.58%
-2.00%
3.51%
3.30%
7.15%
0.02%
5.17%
8.98%
8.20%
-11.65%
-8.95%
0.78%
-7.78%
-18.56%
-9.52%
1.21%
-0.99%
-8.99%
1.06%
4.65%
-0.60%
-3.54%
-6.31%
-0.87%
-4.50%
1.47%
3.52%
1.28%
-3.25%
-1.80%

1.98%
0.40%
1.47%
-2.37%
2.80%
3.04%
1.85%
6.67%
0.25%
-3.61%
2.80%
-0.20%
0.38%
-4.04%
3.14%
6.78%
0.48%
1.62%
1.59%
5.93%
3.07%
4.08%
-3.63%
6.12%
-10.23%
0.94%
-3.62%
-3.66%
-6.22%
-0.05%
0.49%
1.15%
-6.14%
2.09%
2.55%
1.77%
-4.97%
-7.83%
1.89%
4.33%
2.54%
1.88%
8.61%
-7.21%
-6.55%

3.20%
4.24%
0.99%
-2.21%
1.40%
1.25%
1.63%
3.10%
2.43%
2.11%
0.51%
0.01%
-3.14%
1.21%
1.10%
0.05%
2.51%
-0.10%
3.46%
-1.79%
0.69%
-1.13%
3.53%
-0.01%
2.95%
-2.03%
-1.93%
1.87%
-2.56%
3.19%
3.79%
1.39%
0.93%
0.23%
-3.49%
1.78%
1.20%
-1.69%
-1.65%
1.21%
1.71%
4.95%
0.71%
5.35%
-1.20%

-3.85%
1.11%
3.06%
0.98%
2.00%
4.59%
1.28%
4.65%
0.67%
0.00%
3.18%
3.98%
-2.04%
-0.12%
2.61%
1.29%
3.23%
2.16%
2.64%
-9.70%
0.64%
-1.87%
-0.66%
7.86%
-5.02%
4.12%
3.70%
1.77%
5.58%
0.21%
4.08%
6.93%
3.32%
4.21%
5.79%
1.74%
-4.08%
-7.04%
2.86%
2.33%
6.07%
12.53%
0.95%
1.88%
4.20%

1.77%
1.61%
1.13%
4.96%
7.79%
0.83%
-1.71%
-2.78%
-6.22%
5.55%
8.29%
-11.66%
0.49%
-8.23%
-7.52%
-0.91%
-6.34%
3.61%
-2.10%
-1.57%
0.75%
7.25%
1.79%
-8.53%
-6.63%
-1.08%
-2.54%
0.51%
7.40%
-6.64%
-9.68%
3.41%
0.40%
-8.35%
-0.50%
-5.50%
5.89%
-1.65%
2.37%
-2.22%
-3.13%
9.23%
-2.03%
#DIV/0!

-1.12%
-12.86%
2.94%
11.32%
19.00%
7.38%
-21.34%
-13.76%
-1.03%
-2.23%
4.67%
-31.64%
6.16%
-19.89%
-2.90%
-17.27%
1.40%
6.85%
2.01%
-11.85%
8.26%
-5.37%
1.45%
-3.77%
2.52%
-1.02%
-15.87%
-1.62%
8.98%
4.77%
11.49%
-15.33%
-5.35%
4.61%
0.79%
13.66%
20.09%
9.02%
-3.30%
2.25%
9.09%
7.92%
-16.42%
#DIV/0!

%
0.00%

5.00%

10.00%

15.00%
Column E
Linear (Column E)

176 months - 175 returns

return data located rows 4 - 178
Functions on one column at a time
S&P 500 Index
Duke Energy Stock
average monthly return
0.18%
0.59%
average annual return
2.21%
7.14%
standard deviation of monthly returns
4.49%
6.54%
annualized standard deviation of returns
15.55%
22.66%
minimum
-18.56%
-31.64%
maximum
10.23%
20.09%

14.58 years

Functions on two columns at the same time (ordered pairs)

S&P 500 Index - x axis
Duke Energy Stock - y axis
Description of best-fit (regression) line - Duke on S&P 500
slope
0.49
y-intercept

0.51%

correlation

0.33

R-squared

0.11

Date
S&P 500 Index Duke Energy Stock
###
-2.03%
-16.42%
###
9.23%
7.92%
###
-3.13%
9.09%
###
-2.22%
2.25%
###
2.37%
-3.30%
###
-1.65%
9.02%
###
5.89%
20.09%
###
-5.50%
13.66%
###
-0.50%
0.79%
###
-8.35%
4.61%
###
0.40%
-5.35%
###
3.41%
-15.33%
###
-9.68%
11.49%
###
-6.64%
4.77%
###
7.40%
8.98%
###
0.51%
-1.62%
###
-2.54%
-15.87%
###
-1.08%
-1.02%
###
-6.63%
2.52%
###
-8.53%
-3.77%
###
1.79%
1.45%
###
7.25%
-5.37%
###
0.75%
8.26%
###
-1.57%
-11.85%
###
-2.10%
2.01%
###
3.61%
6.85%
###
-6.34%
1.40%
###
-0.91%
-17.27%
###
-7.52%
-2.90%
###
-8.23%
-19.89%
###
0.49%
6.16%
###
-11.66%
-31.64%
###
8.29%
4.67%

###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###

5.55%
-6.22%
-2.78%
-1.71%
0.83%
7.79%
4.96%
1.13%
1.61%
1.77%
-1.20%
5.35%
0.71%
4.95%
1.71%
1.21%
-1.65%
-1.69%
1.20%
1.78%
-3.49%
0.23%
0.93%
1.39%
3.79%
3.19%
-2.56%
1.87%
-1.93%
-2.03%
2.95%
-0.01%
3.53%
-1.13%

-2.23%
-1.03%
-13.76%
-21.34%
7.38%
19.00%
11.32%
2.94%
-12.86%
-1.12%
4.20%
1.88%
0.95%
12.53%
6.07%
2.33%
2.86%
-7.04%
-4.08%
1.74%
5.79%
4.21%
3.32%
6.93%
4.08%
0.21%
5.58%
1.77%
3.70%
4.12%
-5.02%
7.86%
-0.66%
-1.87%

###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###

0.69%
-1.79%
3.46%
-0.10%
2.51%
0.05%
1.10%
1.21%
-3.14%
0.01%
0.51%
2.11%
2.43%
3.10%
1.63%
1.25%
1.40%
-2.21%
0.99%
4.24%
3.20%
-1.80%
-3.25%
1.28%
3.52%
1.47%
-4.50%
-0.87%
-6.31%
-3.54%
-0.60%
4.65%
1.06%
-8.99%

0.64%
-9.70%
2.64%
2.16%
3.23%
1.29%
2.61%
-0.12%
-2.04%
3.98%
3.18%
0.00%
0.67%
4.65%
1.28%
4.59%
2.00%
0.98%
3.06%
1.11%
-3.85%
-6.55%
-7.21%
8.61%
1.88%
2.54%
4.33%
1.89%
-7.83%
-4.97%
1.77%
2.55%
2.09%
-6.14%

###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###
###

-0.99%
1.21%
-9.52%
-18.56%
-7.78%
0.78%
-8.95%
-11.65%
8.20%
8.98%
5.17%
0.02%
7.15%
3.30%
3.51%
-2.00%
5.58%
1.76%
-3.77%
2.81%
5.71%
1.47%
-8.55%
-5.54%
6.65%
-4.86%
8.39%
3.62%
-0.23%
6.33%
2.24%
3.15%
-0.10%
2.81%

1.15%
0.49%
-0.05%
-6.22%
-3.66%
-3.62%
0.94%
-10.23%
6.12%
-3.63%
4.08%
3.07%
5.93%
1.59%
1.62%
0.48%
6.78%
3.14%
-4.04%
0.38%
-0.20%
2.80%
-3.61%
0.25%
6.67%
1.85%
3.04%
2.80%
-2.37%
1.47%
0.40%
1.98%
0.88%
2.72%

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-1.36%
-1.84%
-2.17%
-5.85%
-7.45%
10.23%
-0.51%
0.85%
4.27%
3.98%
3.09%
-0.75%
-6.47%
3.88%
1.25%
1.96%
2.39%
-2.00%
0.28%
0.70%
4.92%
1.10%
3.54%
1.79%
2.06%
-1.51%
4.83%
-3.18%
2.93%
4.36%
2.77%
2.33%
-3.62%
4.22%

1.79%
0.43%
-1.23%
3.06%
5.55%
2.13%
3.29%
5.38%
-3.19%
-0.69%
0.44%
1.96%
3.70%
4.79%
-2.04%
-3.40%
0.02%
1.39%
-1.66%
-0.03%
7.46%
1.85%
4.71%
3.53%
-10.58%
0.86%
5.06%
-6.80%
1.78%
7.15%
-1.41%
-1.37%
2.31%
1.47%

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5/1/14
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8/1/14

0.69%
0.62%
2.08%
1.89%
-1.52%
-0.29%

0.48%
4.48%
-3.59%
4.28%
-2.82%
1.12%

Discrete Annual Compound Interest

Interest Rate
10.00%
Year
0
1
2
3
4
5
6
7
8
9
10

Use SOLVER when F(x) = y, or F(x1, x2, x3, etc

want y at a certain value, or
want y at a maximum or minimum,
given certain constraints on values of x.

Cash Balance
$1,000.00
$1,100.00
$1,210.00
$1,331.00
$1,464.10
$1,610.51
$1,771.56
$1,948.72
$2,143.59
$2,357.95
$2,593.74

use Solver to calculate

(1) What discrete annual interest rate, at an initial balance of $1,000, results in

(2) What initial balance, at an interest rate of 10%, results in $5,000 after 10 ye

(3) Challenge problem

Suppose you wanted to know: after how many years will $1000 at 7% be worth
Hint: this requires re-structuring the formula so that the changing number of ye

y, or F(x1, x2, x3, etc) = y.

minimum,
on values of x.

$1,000, results in $5,000 after 10 years?

$5,000 after 10 years?

00 at 7% be worth $5,000?
ging number of years is located in one cell location

Discrete Annual Compound Interest

Interest Rate
7.00%
Year

Cash Balance
0
###
1
###
2
###
3
###
4
###
5
###
6
###
7
###
8
###
9
###
10
###

After how many years will $1000 at 7% be worth $5,000?

number of years
restated formula

10

$5,000?

Copyright Daniel Egger

l Egger/ Attribution 4.0 Internation

ernational (CC BY 4.0)