How to Calculate an Initial Investment

How to Calculate an Initial Investment
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Before you invest, it's important to make sure you know what your goals are and how to attain them. The best way to determine your goal and how to achieve it is to understand how your investment will be calculated and do the math yourself. Figuring out the calculations can be tricky though, but our step-by-step guide on calculating initial investments will make it easier.

How to Calculate an Initial Investment

Step 1

Determine your goal, what interest rate you will get and how many years you want will be investing your money.

Step 2

Write out the formula for interest, F = P(1 + i)^n. F is the final amount. P is your initial (or principle) investment. i is the interest rate (should be written in decimal form). n is the number of years the interest is compounded.

Step 3

Since you are actually looking for the initial amount you should invest, you will need to re-write the interest formula to P = F / (1 + i)^n

Step 4

Input your values into the formula. For our example the final amount you want will be $250,000 in 45 years with an interest rate of 2.2%, so the formula now looks like this: P = 250,000 / (1 + 0.022)^45

Step 5

Solve the formula. The numbers inside the parentheses are added together first, then you solve the exponential part of the formula, then you can divide. P = 250,000 / (1 + 0.022)^45 P = 250,000 / (1.022)^45 P = 250,000 / 2.6625 P = 93,897