How to use the ‘power to’ feature in Excel – Compound Interest

Let’s learn about the ‘power to’ feature in MS Excel. What is that, you might ask. Let’s look at an example. Lets say, we write ‘=2^3’ in an Excel worksheet cell. The symbol ‘^’ is above the numerical value ‘6’ on your keyboard. Once you press enter you will see the result 8. You could also enter the data using the ‘power’ function like ‘=power(2,3)’ and the result would again be 8.

Let’s use this concept to calculate the compound interest on a bank deposit of 10000 units at the interest rate of 7.25% per year. The value of 10000 units at the end of 5 years at 7.25% interest per year is calculated using the formula ‘=10000 * (1+7.25%)^5’. The result is 14190.13 units. This is the amount you would have in the bank at the end of 5 years. The compound interest earned is calculated using the simple formula: ‘=14190.13-10000’. This works out to ‘4190.13’.

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