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?

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

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.

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.

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

Comments for Compound Interest Calculated Monthly

Average Rating

 May 30, 2020 Rating Compound Interest NEW by: Anonymous To understand everything well it is good to look at the chart: https://clevertools.online/compound-interest-calculator

 Apr 28, 2019 Rating power of 12 NEW by: bill danubbe how does the power of 12 get to .0062?

 Apr 23, 2019 Rating Full calculation NEW by: Kailash How get the value of (1+0.005)power12 is 1.062 Please explain

 Apr 05, 2019 Rating 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 Rating 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 Rating 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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