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How to Calculate a Lump Sum Plus Interest Rate

Original post by Stephanie Ellen of Demand Media

When you invest a lump sum in savings, the interest on the lump sum is compounded. For example, if you invested $100 at 4 percent interest, after one year you would earn interest on $100 and the second year you would earn interest on $104. The formula to calculate compound interest for a lump sum is A = P (1+r/n)^nt where A is future value, P is present value or principal amount, r is the interest rate, t is the number of years the money is deposited for and n is the number of periods the interest is compounded each year.

Step 1

Gather your information. In order to calculate how much your savings will be worth, you need to know what the interest rate is and how many times a year the interest will be paid. You can obtain that information from your financial institution. For example, you might be thinking of investing $1,000 at a 5 percent interest rate, compounded quarterly for five years.

Step 2

Insert the relevant information into the compound interest calculation. In this example, the compound interest calculation would be: A = (1000 (1 + .05/4))^ 4(5).

Step 3

Type the equation into the calculator and then press enter. In this example, A = (1000 (1 + .05/4))^ 4(5) = $1,282.04.

                   

Tips & Warnings

  • Check with your calculator's manual to ensure you are entering the equation correctly. some calculators use a * symbol for multiplication while others may require you to press an "x" key.

Things Needed

  • Calculator

Resources

References

About the Author

Stephanie Ellen teaches mathematics and statistics at the university and college level. She coauthored a statistics textbook published by Houghton-Mifflin. She has been writing professionally since 2008. Ellen holds a Bachelor of Science in health science from State University New York, a master's degree in math education from Jacksonville University and a Master of Arts in creative writing from National University.

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