Difference between revisions of "Compound Interest Formula"

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(Created page with "== Definition == Compound interest is the cumulation of interest to the principal sum of a loan or deposit == Formula == :<math> CI = [ \prod_{i=1}^{d_b} (1 + \frac{r_i \time...")
 
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== Formula ==
 
== Formula ==
 
:<math>
 
:<math>
CI = [ \prod_{i=1}^{d_b} (1 + \frac{r_i \times n_i}{N}) - 1 \ \times \frac{N}{d_c}
+
CI = \left[ \prod_{i=1}^{d_b} (1 + \frac{r_i \times n_i}{N}) - 1 \right] \ \times \frac{N}{d_c}
 
</math>
 
</math>
 +
 +
Where
 +
* <math>d_b</math> is the number of business days in the interest period
 +
* <math>d_c</math> is the number of calendar days in the interest period
 +
* <math>r_i</math> is the interest rate applicable on business day i
 +
* <math>n_i</math> is the number of calendar days for which rate ri applies (on most days, ni will be 1, but on a Friday it will generally be 3, and it will also be larger than 1 on the business day before a holiday).
 +
* N is the market convention for quoting the number of days in the year.
  
 
== See Also ==
 
== See Also ==
* [[Simple Interest Formulat
+
* [[Simple Interest Formula]]
 +
 
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-----
  
 
[[Category:Interest Rate Risk]]]
 
[[Category:Interest Rate Risk]]]

Latest revision as of 11:58, 11 June 2019

Definition

Compound interest is the cumulation of interest to the principal sum of a loan or deposit

Formula


CI = \left[ \prod_{i=1}^{d_b} (1 + \frac{r_i \times n_i}{N}) - 1 \right] \ \times \frac{N}{d_c}

Where

  • d_b is the number of business days in the interest period
  • d_c is the number of calendar days in the interest period
  • r_i is the interest rate applicable on business day i
  • n_i is the number of calendar days for which rate ri applies (on most days, ni will be 1, but on a Friday it will generally be 3, and it will also be larger than 1 on the business day before a holiday).
  • N is the market convention for quoting the number of days in the year.

See Also


]

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