How To Calculate Compound Interest Rate Example Complete Guide

For example buying the debt of some companies rated at a risky level by the agencies that determine levels of risk in corporate debt Moodys Fitch Standard Poors will earn a relatively high rate of interest but there is always risk that these companies might go out of business possibly resulting in losses on investments. Effective Interest Rates The effective interest rate of a loaninvestment is the interest earned after one year expressed as a percentage of the amount borrowedinvested The effective interest rate can be used to compare the performance of different interest rates with different compounding periods Example. Multiply P by 1 your interest rate r given in a decimal.

If for example a 1000 loan comes with a 2 semi-annual compounding interest rate it will generate a more accrued compound interest than the same loan amount that is compounded at 4 annually.

The bank gives you a 6 interest rate and compounds the interest each month. Calculating compound interest is complicated. The bank gives you a 6 interest rate and compounds the interest each month. The interest rate should be an annual amount stated as a percentage of the principal.