The investment calculator is a tool used to forecast the return on your investments and to estimate the term, the interest rate, the initial principal balance, and the necessity of additional contributions. For calculations with reinvestment, this calculator uses the compound interest formula. For calculations without reinvestment, it uses the simple interest formula.
What this calculator can do
The investment calculator helps you work out:
- return on investment of a certain amount (the initial principal balance) over a certain term at a certain interest rate;
- interest rate: at what interest rate a certain amount should be invested for a certain term to earn the target final amount (the goal);
- initial principal balance: how much should be invested at a certain interest rate for a certain term to earn the target final amount;
- term of investment: the term, over which a certain target final amount (the goal) may be earned by investing a certain amount (the initial principal) at a certain interest rate;
- amount of additional contributions: the amount of monthly contributions required to achieve the goal by investing a known initial principal for a known term at a known interest rate.
Reinvestment
Reinvestment refers to the practice of putting the income you gain from an investment back into that investment. This calculator offers calculation of reinvestment once a month, once a quarter, once every six months, and once a year.
Reinvestment considerably boosts the return on investments. Use this calculator to check it. Use the same input data to make two calculations - with and without reinvestment. For calculations with reinvestment, this calculator uses the compound interest formula. For calculations without reinvestment, it uses the simple interest formula.
Compound Interest
Compound interest applies to the accumulated interest from previous periods reinvested into the initial principal balance; thus, in the next period interest is accrued on a larger amount. The deposit amount grows from period to period and so does the investor's return.
Compound Interest Formula:
P - initial principle balance
r - annual rate
n - number of compound periods per year
(for instance, if interest is accrued once a month, it is compounded 12 times per year)
t - investment term in years
Without reinvestment, the return on investment may be calculated using the below formula:
P - initial principle balance
r - annual rate
t - investment term in years
Let’s compare two investment examples using the same input data, one with and the other without reinvestment.
Paul invests $500,000 for 7 years at 10% p.a. Let’s calculate his capital in 7 years using the formulas:
Without reinvestment:
A = P × (1 + t × r) = 500,000 × (1 + 7 × 0,1) = $850,000
With monthly reinvestment:
A = P × (1 + rn)nt = 500,000 × (1 + 0,112)12 × 7 = $1,004,000.