Simple Calculation of Certificate of Deposit calculator

The Compound Interest Formula

The standard formula for compound interest is:

A = P (1 + r/n)^(nt)

Where:

• A = the Future Value of the investment/loan, including interest
• P = the Principal investment amount (the initial deposit)
• r = the annual interest rate (decimal) (APR / 100)
• n = the number of times that interest is compounded per year
• t = the number of years the money is invested for

Total Interest Earned = A - P

Calculation Example

Given:

• Initial Deposit (P): $10,000
• Interest Rate (APR): 1.5%
• Term: 12 months
• Compounding Frequency: Monthly (n = 12)

Step 1: Convert the inputs into the correct units.

• P = 10000
• r = 1.5 / 100 = 0.015 (decimal)
• n = 12 (compounded monthly)
• t = 12 months / 12 months per year = 1 year

Step 2: Plug the values into the formula.
A = 10000 * (1 + 0.015/12) ^ (12 * 1)

Step 3: Calculate step-by-step.

1. r / n = 0.015 / 12 = 0.00125 (this is the interest rate per period)
2. 1 + (r/n) = 1 + 0.00125 = 1.00125
3. n * t = 12 * 1 = 12 (this is the total number of compounding periods)
4. (1.00125) ^ 12 ≈ 1.015104 (This calculates the growth multiplier)
   • You can calculate this by entering 1.00125 and using the x^y function on a calculator with y being 12.

Step 4: Find the Final Balance (A).
A = 10000 * 1.015104 ≈ $10,151.04

Step 5: Calculate the Total Interest Earned.
Total Interest = $10,151.04 - $10,000 = $151.04