Controlling Iterative Calculations in Excel

Excel will usually give you an error message if you attempt to enter a circular reference. However formulas can refer to the cell in which they are entered if the option to perform iterative calculations is enabled.

Under File . . . Options . . . Formulas, check off 'Enable iterative calculation'. You have the option to set the maximum number of iterations, and the maximum change for each iteration. The maximum change sets how different the value of each iterative formula can be. The maximum number sets when Excel will stop performing calculations.

See this example:

Here we see an Excel spreadsheet showing how an investment of $5,000, which accrues at a rate of 3% each year, grows. An absolute reference to the cell containing the interest rate is multiplied by the previous years total, and then added to the previous years total. Using this formula we can see that the original deposit grows to a total of $5,796.37 over five years.

With iterative calculations enabled, and set to a maximum of 4, we can get the same result in fewer cells.

Begin by entering the initial deposit in cell E1, the interest in cell E2, and then the formula, "=E1*(1+E2)" in cell E3.

Then in cell E1 enter a reference to the formula result.

As you can see you get the same result in cell E3 as in cell B9, showing the growth of the initial investment over five years.