Methodology Compound Interest Calculation

A formula that can be used for calculating compound interest

A = P(1 + r/n)nt ; R = r * 100

Where:
A= Total Accrued Amount (principal + interest)
P = Principal Amount
I = Interest Amount
R = Rate of Interest per year in decimal ; r = R/100
t = number of periods
n = compounding period

UK Base Interest Rates source;
www.databank.rbs.com

So for example if we want to calculate interest on £100,000 over a period of 4 years and 8 months based on an interest rate of 4.0% over the base of 0.5% over differing compound periods;
Compounded annually;
A = 100,000 ( 1 + 0.045/1)^4.67 = £122,821.10
A = £122,821.10

Compounded Monthly;
A = 100,000 ( 1 + 0.045/12)^56 = £123,319.40
A = £123,319.40

Compounded Daily
A = 100,000 ( 1 + 0.045/365)^1704 = 123,376.30
A = £123,376.30
Please note : simplification this calculation leap years re-calculate if important
(^ indicates to the power of)

About Mark

Mark Brooks a forty something individual working and living in and around Edinburgh
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