# How To Calculate A Lump Sum Plus Interest Rate

Accountancy Resources

#### How To Calculate A Lump Sum Plus Interest Rate #### Quick Summary

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

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.

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