- 1). Divide the interest rate by 100. If your interest rate is 4% APR, move the decimal point over two places, which equals .04. With a $1,000 deposit in a savings account that pays 4% annually, multiply the deposit by the interest rate. $1,000 X .04 = $40.00 per year interest.
- 2). Divide the annual interest earned by 12 to determine the monthly interest earned. If the annual interest was $40, then divide that value by 12 to determine the monthly interest earned. In this case, $40 / 12 = $3.33 per month interest.
Divide the monthly interest earned by 30 to determine the daily interest earned. If the daily interest was $3.34, then divide that value by 30 (days) to determine the daily interest earned. In this case, $3.34 / 30 = $0.11 per day. - 3). Convert daily and monthly interest rates to an annual interest rate by multiplying the given rate as needed. If a pawn broker uses a monthly interest rate of 28%, multiply .28 X 12 = 336% APR.
- 4). Compounding interest rates are calculated differently. If the interest on your savings is compounded more than once a year, then calculate the annual percentage yield, to determine the actual interest earned at the end of the year. The formula for converting APR to APY: APY=((1+APR/f)^f), where f=frequency (4=quarterly, 52=weekly).
To calculate the APY using MS Excel or Open Office Calc, type the following into the spreadsheet: In cell A1, type the APR. In cell A2 type in the number of times the interest will compound (quarterly=4, monthly=12, daily=365). In cell A3 type the following formula: =(1+A1/A2)^A2-1 This will give you the APY to use in calculating interest earned on your savings when it is compounded more than once during the year.
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