Nominal Compound Interest Formula. Subtract the principal if you want just the. On the other side the stated or nominal rate is less than the effective interest rate.
The formula for compound interest is p 1 r n nt where p is the initial principal balance r is the interest rate n is the number of times interest is compounded per time period and t is the number of time periods. The effective interest rate is calculated as if compounded annually half yearly monthly or daily. The total accumulated value including the principal sum plus compounded interest is given by the formula.
P is the original principal sum p is the new principal sum r is the nominal annual interest rate n is the compounding frequency t is the overall length of time the interest is applied expressed using the same time units as r usually years.
For example a nominal annual interest rate of 12 based on monthly compounding means a 1 interest rate per month compounded. Calculates principal principal plus interest rate or time using the standard compound interest formula a p 1 r n nt. A nominal interest rate for compounding periods less than a year is always lower than the equivalent rate with annual compounding this immediately follows from elementary algebraic manipulations of the formula for. Suppose if the effective interest rate or apy is 8 25 compounded monthly then the nominal annual interest rate or stated rate will be about 7 95.
