Question

What is the value of "n" in the equation for compound interest if it is compounded daily and interest has accrued for 2 years?

Answer 1

Formula for compound interest=

CI=(P*(1+i)^n)-P

where ,

CI=Compound Interest

P is the principal

i=rate of interest p.a. converted to I per compounding period--but always given as per annum rate--& to be divided by the no.of compounding priods in a year ,n

n=no.of compounding periods in a year

So, when interest is compounded daily,

n will be 365 --as there are 365 days in a year.

In the given case,

CI=(P*(1+(i/365)^(2*365))-P

CI=(P*(1+(i/365)^730)-P

so, n=no.of compounding periods in a year ,here, 365

& i/365 will be the interest , if interest is compounded daily

& in this case, it is compounded for a total of 2yrs.*365 times in a year = 730 times