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Simple Interest Compounded Daily Formula:
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Simple interest compounded daily is a method of calculating interest where the interest is calculated each day based on the principal amount. This provides a more accurate approximation of interest compared to simple annual interest calculations.
The calculator uses the simple interest compounded daily formula:
Where:
Explanation: This formula calculates the interest earned by multiplying the principal by the daily interest rate (annual rate divided by 365) and then multiplying by the number of days.
Details: Accurate interest calculation is crucial for financial planning, investment decisions, loan repayment calculations, and understanding the true cost of borrowing or return on investment.
Tips: Enter the principal amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and time period in days. All values must be positive numbers.
Q1: What's the difference between simple interest and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on both the principal and accumulated interest.
Q2: Why divide by 365 instead of 360?
A: Dividing by 365 provides a more accurate daily calculation based on the actual number of days in a year, though some financial institutions may use 360 days.
Q3: How do I convert annual percentage rate to decimal?
A: Divide the percentage rate by 100. For example, 5% becomes 0.05 as a decimal.
Q4: Is this calculation method used by banks?
A: While this provides a good approximation, most financial institutions use more complex compounding formulas for actual interest calculations.
Q5: Can I use this for investment calculations?
A: Yes, this formula can be used to estimate returns on simple interest investments, though most investments use compound interest formulas.