Jack asks how to calculate compound growth for a year that is 10 years in the future. Rather than using a table to calculate the growth for each year, Bill uses the Exponent Calculation to provide the result in one step!
Transcript of the video:
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Learn Excel from MrExcel podcast, episode 1330.
Compound Growth.
Hey! Welcome back to the MrExcel netcast.
I'm Bill Jelen.
Today's question sent in by Jack.
Jack is doing some information, where he needs to do compounded growth.
So, you have an amount that, it grows by five percent every year for some number of years and you can do this using a whole series of formula.
So, I'm going to hold down the [ control ] key here, and drag the years and then we use the previous amount, 1000 times 1.05 and copy that down.
We have our growth.
Okay, but you know, imagine if you had to grow that for 4 years or 50 years or 60 years, you're adding a whole bunch of cells in order to do that calculation and in fact, it does not require all those cells.
You can do all this in one, very simple formula.
So, I'm going to take that original amount of thousand and multiply that times and then in parentheses say 1.05, that's the original amount plus five percent raise to, the caret sign (^) is an exponent raised to the tenth power.
So, what that's saying is we're going to take that 1000 and multiply it by 1.05, times 1.05, times 1.05 on out to 10.
If you think about that's going to give us the exact same answer, that we get there after compounding for 10 years.
So, a very easy way to do that compound of math, it also kind of works backwards.
If you know, that this is where you ended up or that's where you want to end up at retirement.
Let's say and you know that's 40 years away, or so let's come up with something, let's set it you want to retire with 250,000 and that's 30 years away.
You could take the 250,000 divided by 1.0, let's say you can get a 4% return raise to the 30th power. (1.04^30) All right! So, you need 77000 today.
Invested at 4%, in order to come up with the quarter of million dollars in 30 years .
All right! So, very easy way to do that compounding without having to add all of these cells, all the way down.
Want to thank Jack sending that question in, want to thank you for stopping by.
We'll see you next time for another netcast from MrExcel.
Learn Excel from MrExcel podcast, episode 1330.
Compound Growth.
Hey! Welcome back to the MrExcel netcast.
I'm Bill Jelen.
Today's question sent in by Jack.
Jack is doing some information, where he needs to do compounded growth.
So, you have an amount that, it grows by five percent every year for some number of years and you can do this using a whole series of formula.
So, I'm going to hold down the [ control ] key here, and drag the years and then we use the previous amount, 1000 times 1.05 and copy that down.
We have our growth.
Okay, but you know, imagine if you had to grow that for 4 years or 50 years or 60 years, you're adding a whole bunch of cells in order to do that calculation and in fact, it does not require all those cells.
You can do all this in one, very simple formula.
So, I'm going to take that original amount of thousand and multiply that times and then in parentheses say 1.05, that's the original amount plus five percent raise to, the caret sign (^) is an exponent raised to the tenth power.
So, what that's saying is we're going to take that 1000 and multiply it by 1.05, times 1.05, times 1.05 on out to 10.
If you think about that's going to give us the exact same answer, that we get there after compounding for 10 years.
So, a very easy way to do that compound of math, it also kind of works backwards.
If you know, that this is where you ended up or that's where you want to end up at retirement.
Let's say and you know that's 40 years away, or so let's come up with something, let's set it you want to retire with 250,000 and that's 30 years away.
You could take the 250,000 divided by 1.0, let's say you can get a 4% return raise to the 30th power. (1.04^30) All right! So, you need 77000 today.
Invested at 4%, in order to come up with the quarter of million dollars in 30 years .
All right! So, very easy way to do that compounding without having to add all of these cells, all the way down.
Want to thank Jack sending that question in, want to thank you for stopping by.
We'll see you next time for another netcast from MrExcel.
