How do I Calculate an Initial Investment?

The initial investment is the amount of principal you put into an account to earn interest. For example, if you invest in a CD (certificate of deposit) account, you must place an initial deposit then leave the account alone until it reaches maturity. If you know the current balance of the investment account and a few other details, you can figure out the amount of the initial investment.

List the key variables related to your investment account. That includes the current balance, the number of years the account has been open, the interest rate and the frequency of compounding for the investment account. Frequency of compounding is how often interest is calculated and added to the balance each year—it is usually daily (365 times), monthly (12 times), quarterly (4 times) or yearly (once). If you're unsure of this, ask the broker or bank that maintains the account.

Use an equation to determine the amount of the initial investment. The equation is I=V/[(r/p)y+1]^p where "I" is the initial investment, "V" is the current value, "r" is the interest rate, "p" is the number of periods per year that the account is compounded, and "y" is the number of years you've held the investment.

Enter your details into the equation to find out the initial investment ("I"). So for instance, if your current value is $2,188.10 after three years with an interest rate of 3 percent (.03) on an investment that compounds monthly (12 times per year), the filled equation is I=2188.10/[(.03/12)3+1]^12. The equation tells you that the initial investment ("I") was $2,000.

About the Author