Daily Compound Interest (Formula) | Step by Step Calculation with Examples [Video]

In this video on Daily Compound Interest, here we discuss how to calculate daily compound interest along with its formula and practical examples.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐃𝐚𝐢𝐥𝐲 𝐂𝐨𝐦𝐩𝐨𝐮𝐧𝐝 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭?
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Daily compounded interest means interest is accumulated on a daily basis and is calculated by charging interest on the principal plus interest earned on a daily basis and hence is higher than interest compounded on a monthly / quarterly basis due to high compounding frequency.

𝐃𝐚𝐢𝐥𝐲 𝐂𝐨𝐦𝐩𝐨𝐮𝐧𝐝 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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A=(P (1+r/n)^(nt)) – P

𝐃𝐚𝐢𝐥𝐲 𝐂𝐨𝐦𝐩𝐨𝐮𝐧𝐝 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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The bank borrows a total of $5000 where the interest rate is 7% and the balance is borrowed for a term of 3 years. Let’s figure out how much the bank will measure the compounded interest on the loan provided.

From above given data we get,

Principle = $5000, Annual Interest = 7%, N = 365, Time(years) = 3

By using above formula we get,

=($5000*(1+7/365)^(365*3))-$5000
= 1168.27

To know more about the 𝐃𝐚𝐢𝐥𝐲 𝐂𝐨𝐦𝐩𝐨𝐮𝐧𝐝 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/daily-compound-interest/

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