How Do I Calculate Interest Per Annum?

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4 Answers

Anonymous Profile
Anonymous answered
All you need is a simple mathematics equation to figure this out. First, you need to know three variables:

Principal amount

Interest rate

Time period in years

Once you have obtained these variables, you simply need to apply them to an equation. You need to multiply the principal amount by the interest rate. For example, your principal amount of investment (or loan) is $10,000 and your interest rate is 5%.

You would multiply

P * r = I or $10,000 * 0.05 = $500

This is the amount of interest you will pay the first year. Now you multiply your annual interest rate by the timeline of the loan.  In this example, the loan will be 3 years, so:

I * t = T $500 * 3 = $1,500

This is the amount of interest you will pay over the course of the loan, using the Simple Interest Formula.

If you need to determine the interest per annum using the Compound Interest Formula then you need to add a few more steps.

The equation for compound interest is:

I = {P(1 + r)t} - P

Using the same variables, the total interest is equal to

I = {10,000(1 + 0.05)3} - 10,000

Which equals:

I = $1,576.25 which is just shy of $100 more over the course of the loan than using the simple formula. When you apply for the loan, you need to know which method the bank uses for calculating interest if you want to be able to look into the future at the possible expense.

If you really need help, you can use online calculators (like the one at www.easycalculation.com/simple-interest.php) which ask you to fill in the variables that you know in order to determine the amount you are looking for.
Larry Patterson Profile
Larry Patterson answered
8% (.08) divided by 365 gives approximate interest rate per day.
Then take that interest rate per day (0.000219) times the number of days from Apr. 5 til now.  Then take the result times the amount of money involved.
Note that this method does not allow for compounding. Daily? Monthly? Yearly?

For example:  $ 10,000 at 8%, compounded daily for 214 days would amount to  $ 480.16.

Uncompounded using formula in first paragraph would be $ 468.66.  In other words, daily compounding increased interest by about $ 12, based on $ 10k principal.
Anonymous Profile
Anonymous answered
As freedom1St said, you need to take into consideration how often the interest compounds, otherwise you'll under count the amount of interest. The best way to do this is to use one of the many calculators on the internet just search for "compound interest calculator" and you should be able to plug the principal (amount you owe), interest rate, and number of times a year it compounds to get the exact amount of interest.

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