In this Blog we will Learn How to Cacluate Interest Rates formula with examples. But First learn What are interest rates is very immportant.
How to Calculate Simple Interest Rate?
Formula:
Simple Interest (I) = (P x R x T)
P = Principal
R = Rate
T = Time
Example:
If you invest $5,000 at an annual interest rate of 5% for 6 years, the calculation would be:
I = 5,000 x 0.05 x 6
The interest rate on investment is $1500
How to Calculate Compound Interest?
Formula:
Future Value (FV) = P(1 + r/n)n x t
P = Principal
r = Rate of return
n = Number of years
t = Time
FV = Future Value
Example
Suppose you invest $1,000 in a savings account with a 6% annual interest rate, compounded quarterly (n = 4), for 5 years. To calculate the future value:
FV = 1,000(1 + 0.06/4)4 x 5
FV = 5,306.8
Compound Interest= F.V – P.V
= 5,306.81 – 1000
= 5,306.81
After 5 years, your investment will grow to approximately $5,306.81 and interest earned will be $4306.85.