Compound Interest Calculation

Compound interest calculation formula:

A1 – initial amount
An – amount after n years (or days/weeks/months)
R – nominal annual interest rate
M – number of compounding periods in one year
N – number of years (or days/weeks/months)

Example #1

Initial amount (A1) = $400
Number of years (N) = 6
Nominal annual interest rate (R), compounded yearly = 13%

So,

Number of compounding periods in one year (M) = 1
Amount after 6 years:

Interest amount = $832.78 – $400 = $432.78
Total yield = ($832.78 – $400) / $400 x 100% = 108.2%

Example #2

Advertisements

Initial amount (A1) = $400
Number of years (N) = 5
Nominal annual interest rate (R), compounded monthly = 13%

So,

Number of compounding periods in one year (M) = 12
Amount after 5 years:

Interest amount = $763.54 – $400 = $363.54
Total yield = ($763.54 – $400) / $400 x 100% = 90.9%

Example #3

Initial amount (A1) = $400
Number of months (N) = 5
Nominal annual interest rate (R), compounded monthly = 13%

So,

Number of compounding periods in one year (M) = 12
Amount after 5 months:

Interest amount = $422.14 – $400 = $22.14
Total yield = ($422.14 – $400) / $400 x 100% = 5.54%

Advertisements
1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading...