Monthly Compound Interest Formula - WallStreetMojo

Monthly compounding is calculated by principal amount multiplied by one plus rate of interest divided by a number of periods whole raise to the power of the ... SkiptoprimarynavigationSkiptomaincontentSkiptoprimarysidebarSkiptofooter Home»FinancialModelingGuides»ExcelModeling»MonthlyCompoundInterestArticlebyMadhuriThakurReviewedbyDheerajVaidya,CFA,FRM WhatistheMonthlyCompoundInterest? Monthlycompoundinterestreferstothecompoundingofinterestonamonthlybasis,whichimpliesthatthecompoundinginterestischargedbothontheprincipalaswellastheaccumulatedinterest.Monthlycompoundingiscalculatedbyprincipalamountmultipliedbyoneplusrateofinterestdividedbyanumberofperiodswholeraisetothepowerofthenumberofperiodsandthatwholeissubtractedfromtheprincipalamountwhichgivestheinterestamount. MonthlyCompoundInterestFormula Theequationforcalculatingit isrepresentedasfollows, A=(P(1+r/n)nt)–P Youarefreetousethisimageonyourwebsite,templatesetc,PleaseprovideuswithanattributionlinkHowtoProvideAttribution?ArticleLinktobeHyperlinkedForeg:Source:MonthlyCompoundInterest(wallstreetmojo.com) Where A=MonthlycompoundrateP=PrincipalamountR=RateofinterestN=Timeperiod Generally,whensomeonedepositsmoneyinthebank,thebankpaysinteresttotheinvestorintheformofquarterlyinterest.Butwhensomeonelendsmoneyfromthebanks,thebankschargetheinterestfromthepersonwhohastakentheloanintheformofmonthlycompoundinginterest.Thehigherthefrequency,themoretheinterestchargedorpaidontheprincipal.Forexample,theinterestamountformonthlycompoundingwillbehigherthantheamountforquarterlycompoundingQuarterlyCompoundingThecompoundingquarterlyformuladepictsthetotalinterestaninvestorcanearnoninvestmentorfinancialproductiftheinterestispayablequarterlyandreinvestedinthescheme.Itconsiderstheprincipalamount,quarterlycompoundedrateofinterestandthenumberofperiodsforcomputation.readmore.Thisisthebusinessmodelofabankinabroaderwaywheretheymakemoneyinthedifferentialoftheinterestpaidforthedeposits,andtheinterestreceivesfortheloandisbursed. Examples YoucandownloadthisMonthlyCompoundInterestFormulaExcelTemplatehere– MonthlyCompoundInterestFormulaExcelTemplate Example#1 Asumof$4000isborrowedfromthebankwheretheinterestrateis8%,andtheamountisborrowedforaperiodof2years.Letusfindouthowmuchwillbemonthlycompoundedinterestchargedbythebankonloanprovided. Belowisthegivendataforthecalculation TheInterestcanbecalculatedas, =($4000(1+.08/12)^(12*2))-$4000 Example#2  Asumof$35000isborrowedfromthebankasacarloanwheretheinterestrateis7%perannum,andtheamountisborrowedforaperiodof5years.Letusfindouthowmuchwillbemonthlycompoundedinterestchargedbythebankonloanprovided. Belowisthegivendataforthecalculation =($35000(1+.07/12)^(12*5))-$35000 =$14,616.88 Example#3 Asumof$100,000isborrowedfromthebankasahomeloanwheretheinterestrateis5%perannum,andtheamountisborrowedforaperiodof15years.Letusfindouthowmuchwillbemonthlycompoundedinterestchargedbythebankonloanprovided. Belowisthegivendataforthecalculation =($60000(1+.05/12)^(12*8))-$600000 =$29435 Sothemonthlyinterestwillbe$29,435. RelevanceandUses Generally,whensomeonedepositsmoneyinthebank,thebankpaysinteresttotheinvestorintheformofquarterlyinterest.Butwhensomeonelendsmoneyfromthebanks,thebankschargetheinterestfromthepersonwhohastakentheloanintheformofmonthlycompoundinginterest.Thehigherthefrequency,themoretheinterestchargedorpaidontheprincipal.Thisishowthebanksmaketheirmoneyonthedifferentialoftheinterest. RecommendedArticles ThishasbeenaguidetoMonthlyCompoundInterestFormula.Herewediscusshowtocalculatemonthlycompoundinterestusingitsformulaalongwithexamplesandadownloadableexceltemplate.Youcanlearnmoreaboutexcelmodelingfromthefollowingarticles– InterestonLoanCompoundInterestDefinitionDailyCompoundInterestContinuousCompoundingCalculationMortgageInterestDeduction ReaderInteractions LeaveaReplyCancelreplyYouremailaddresswillnotbepublished.Requiredfieldsaremarked*CommentName* Email* Website Savemyname,email,andwebsiteinthisbrowserforthenexttimeIcomment. Δ PrimarySidebar GetFREEAccessto500+VideoTutorials SubscribetoYoutubeNow! FooterCompany Resources Courses FreeInvestmentBankingCourse IBExcelTemplates,Accounting,Valuation,FinancialModeling,VideoTutorials EnterEmailAddress *Pleaseprovideyourcorrectemailid.LogindetailsforthisFreecoursewillbeemailedtoyou x FreeInvestmentBankingCourse IBExcelTemplates,Accounting,Valuation,FinancialModeling,VideoTutorials EnterEmailAddress *Pleaseprovideyourcorrectemailid.LogindetailsforthisFreecoursewillbeemailedtoyou x DownloadMonthlyCompoundInterestFormulaExcelTemplate EnterEmailAddress x Login ForgotPassword? x Let’sGetStarted EmailID* Pleaseselectthebatch Upcomingbatch* 19th/20thSeptember2020Saturday-Sunday9amISTto5pmIST 26th/27thSeptember2020Saturday-Sunday9amISTto5pmIST x x Cookieshelpusprovide,protectandimproveourproductsandservices.Byusingourwebsite,youagreetoouruseofcookies(PrivacyPolicy) GetFreeAccessto500+VideosinExcel,VBA&More SubscribetoWallstreetmojoYoutubeChannel 52.5Ksubscribers x