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Interest Calculations


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Present Value, Future Value

Interest Calculation Example 1
Interest Calculation Example 1a

Interest Calculation Example 2
Interest Calculation Example 2a

Compound Interest Example 1
Compound Interest Example 2

Simple and Compound Interest Methods

Simple Interest
      Interest = Principal x Interest rate per period x Number of periods

Compound Interest
      Interests for previous periods are added to principal for the calculation of interest.
      Interest for the nth period 
          = (Principal + Interest for period 1 +  .... + Interest for period n-1) x Interest rate per period


[Example 1, Company A]
Company A borrowed $200,000 on January 1, 2011.  Annual interest rate is 10%.  Calculate interest expenses for 2011, 2012 and 2013.

Simple Interest Method
Year Principal Interest rate Interest expense Principal + Cumulative interest
2011 $200,000 10% $20,000 (*1) $220,000
2012 $200,000 10% $20,000 (*1) $240,000
2013 $200,000 10% $20,000 (*1) $260,000

   (*1) $200,000 x 10% = $20,000

Compound Interest Method
   Interest is compounded annually.
Year Principal Interest rate Interest expense Principal + Cumulative interest
2011 $200,000 10% $20,000 (*2) $220,000
2012 $200,000 10% $22,000 (*3) $242,000
2013 $200,000 10% $24,200 (*4) $266,200

   (*2) $200,000 x 10% = $20,000
   (*3) $220,000 x 10% = $22,000
   (*4) $242,000 x 10% = $24,200

  


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