Question

What is the formula for monthly compound interest?

Answer 1

The formula for compound interest is compounded monthly.

The formula for compound interest is:

$\begin{array}{rcl}\mathit{C}\mathit{I}& \mathbf{=}& \mathbf{}\mathit{P}{\left(1+\frac{r}{n}\right)}^{\mathbf{n}\mathbf{t}}\mathbf{-}\mathit{P}\end{array}$

Where,

• $n$ is the number of times the interest is paid in a year.
• $P$ is the amount of principal.
• $r$ is the rate of interest at which principal is compounded
• $t$ is the number of years for which principal is compounded

Since the principal is compounded monthly i.e. 12 times a year, therefore $\begin{array}{rcl}CI& =& P{\left(1+\frac{r}{12}\right)}^{12t}-P\end{array}$

Hence, The formula for compound interest when it is compounded monthly every year is $\begin{array}{rcl}CI& =& P{\left(1+\frac{r}{12}\right)}^{12t}-P\end{array}$