Parameters:
(1) initial amount of money (principal)
(2) percent interest rate, expressed as a decimal fraction
(3) number of years involved
(4) number of times interest compounded during the year
For simple interest, there is no compounding during the life of the loan and:
amount due =
= (initial amount) * (1 + ((number of years) * (interest rate as a decimal fraction)))
For interest compounded during the year:
amount due =
= (initial amount) * ((1 + ((interest rate as a decimal fraction) / (number of times compounded per year))) ^ ((number of years) * (number of times compounded during year)))
|
Compounding Interval
|
Number of Times Per Year
|
|
annual (once)
|
1
|
|
quarterly
|
4
|
|
monthly
|
12
|
|
weekly
|
52
|
|
daily
|
365
|
If the final amount due is known, then the equations can be reversed to determine the initial amount.
