- What Is the Monthly Compound Interest Formula?
- Monthly Compound Interest Formula
- Derivation of Monthly Compound Interest Formula
- Examples Using Monthly Compound Interest Formula
- How to Calculate Amount Using Monthly Compound Interest Formula?
- What Is r In the Monthly Compound Interest Formula?
- What Are the Components of the Monthly Compound Interest Formula?
The monthly compound interest formula is used to find the compound interest per month. Compound interest is widely known as interest on interest. Compound interest for the first period is similar to the simple interest but the difference occurs in and from the second period of time. From the second period, the interest is also calculated on the interest thus earned on the previous period of time, that is why it is known as interest on interest. Let us learn more about the monthly compound interest formula along with solved examples. ## What Is the Monthly Compound Interest Formula?The monthly compound interest formula is also known as the formula of interest on interest calculated per month, the interest is added back to the principal each month. Total compound interest is the final amount excluding the principal amount. ## Monthly Compound Interest FormulaThe formula for the compound interest is derived from the difference between the final amount and the principal, which is: CI = Amount - Principal. The formula of monthly compound interest is: CI = P(1 + (r/12) )12t - P Where, - P is the principal amount,
- r is the interest rate in decimal form,
- t is the time.
## Derivation of Monthly Compound Interest FormulaThe formula for calculating the compound interest is as, CI = P (1 + r/100)n - P is the principal amount
- r is the rate of interest
- n is frequency or no. of times the interest is compounded annually
- t is the overall tenure.
If the time period for the calculation of interest is monthly, the interest is calculated for each month, and the amount is compounded 12 times a year as there are 12 months in a year. The formula to calculate the compound interest when the principal is compounded monthly is given as: CI = P(1 + (r/12) )12t - P Here the compound interest is calculated for a month (time period). Thus, the rate of interest r, is divided by 12 and the time period is 12 times.
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To find: Compound interest accumulated after 1 year. P = 1500, r = 0.043 (4.3%), n = 12 , and t = 1 (given) Using monthly compound interest formula, CI = P(1 + (r/n) )nt - P Put the values, CI = 1500(1 + (0.043/12))12 - 1500 CI = 65.786
To find: Interest rate P = 600, n = 12, and t = 2, Amount = 2400 (given) Using formula, CI = Amount - Principal Put the values, CI = 2400 - 600 = 1800 Using monthly compound interest formula, CI = P(1 + (r/12) )12t - P Put the values, 1800 = 600(1+ (r/12))12×2 - 600 4 = (1+ (r/12))24 r = 71.4
To find: Monthly compound interest P=$6000, r=10%, t=2years (given) CI = P(1 + (r/12) )12t - P Put the values, = 6000(1+10/12)12×2 – 6000 = 7322.35 – 6000 = 1322.35
The monthly compound interest formula is used to find the compound interest per month. The formula of monthly compound interest is: CI = P(1 + (r/12) )12t - P where, P is the principal amount, r is the interest rate in decimal form, and t is the time. ## How to Calculate Amount Using Monthly Compound Interest Formula?There is a direct formula for the calculation of monthly compound interest. A = CI = P(1 + (r/12) )12t - Step 1: Here we need to define the principal and the rate of interest at which the compound interest is calculated so check for the values of P, r and t.
- Step: Put the values in the formula, A = CI = P(1 + (r/12) )12t
## What Is r In the Monthly Compound Interest Formula?In the monthly compound interest formula, CI = P(1 + (r/12) )12t - P, r refers to the interest rate on the principal. ## What Are the Components of the Monthly Compound Interest Formula?The calculation of monthly compound interest requires us to know the principal, rate of interest, and the time period. No worries! We‘ve got your back. Try BYJU‘S free classes today! No worries! We‘ve got your back. Try BYJU‘S free classes today! No worries! We‘ve got your back. Try BYJU‘S free classes today! Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses Open in App Suggest Corrections 8 |