Compound Interest Calculated Monthly

by Juanita
(USA)

Question
I made a loan of $500.00 with an annual 6% interest rate, which will be compounded monthly. How do I calculate this type of loan?

Answer
STEP 1:
You are required to calculate the amount of interest obtained by monthly compounding. The formula used for finding compound interest is:

compound interest formula

Here, P denotes the principal, r represents the annual interest rate, n is the number of times the interest is compounded per year, and t is the time in years.

STEP 2:
The rate of interest is 6% per year. Before you begin the calculations, you need to express 6% as an equivalent decimal number. This can be achieved by dividing 6 by 100.

convert 6 percent to decimal


STEP 3:
Since the interest is compounded monthly, you can take n as 12. As no time period has been specified, we shall assume that the loan is taken for a period of one year. Now that all the variable values are known, you can directly substitute them in the formula and get the result.

using the compound interest formula

We have determined the loan amount after 1 year by monthly compounding as about $531.00.

Comments for Compound Interest Calculated Monthly

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Apr 28, 2019
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power of 12 NEW
by: bill danubbe

how does the power of 12 get to .0062?

Apr 23, 2019
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Full calculation NEW
by: Kailash

How get the value of (1+0.005)power12 is 1.062
Please explain

Apr 05, 2019
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wrong calculation NEW
by: Lin

your formula used in this calculation is completely wrong. This formula is used to calculate the compound saving scenario.
If someone saved P in the bank with x% interest rate and monthly compound. y years later, your total saving account worth will be P(1+x/12)^12y. (using your formula)

In loan calculation, the principles get paid off month after month. The more principles is paid off, the less interest in the monthly payment. Hence the formula shall be:

monthly Payment= (r*loan amount) /1-(1+r)-n
http://financeformulas.net/Loan_Payment_Formula.html

Apr 04, 2019
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Compound Daily Interest Calculator NEW
by: Anonymous

You can use Compound Daily Interest Calculator
https://play.google.com/store/apps/details?id=com.oshemb.bitconnectlendingcalculator

Dec 06, 2018
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question
by: felix

a captai borrowed $763 at 24% p.a compound interest is payable monthly for 5 months. He paid back $152.60 at the end of each of the 4 months. calculate how much he has to pay in order to clear his debt at the end of the fifth month

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