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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5085  
Subject: Re: Calculating interest Date: 2/24/2004 12:56 AM
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I meant to add, given that monthly contributions are to be factored into my spreadsheet, it seems that working in months would be preferable. That said, I've never seen a retirement calculator ask what your expected monthly return on your investments might be...

It IS critical (or, at the very least, vastly simpler) that the same period size be used throughout any one calculation.

So if you're adding more cash to your retirement account monthly, you should be using a monthly rate of return.

Usually you'll be close enough to just divide the annual percentage by 12.

If you are quite certain that the annual figure is a percentage YIELD, rather than an interest rate (i.e. it includes the effects of compounding within the year), you can go the formal route. Which is:

Given the annual yield as a decimal fraction, e.g. 0.12 for 12% per year:

Monthly rate = (annual yield + 1) ^ (1/12) - 1
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