Formula
The primary formula for calculating the interest accrued in a given period is:
where is the accrued interest, is the fraction of the year, is the principal, and is the annualized interest rate.
is calculated as follows:
where is the number of days in the period, and is the number of days in the year.
The main variables that affect the calculation are the period between interest payments and the day count convention used to determine the fraction of year, and the date rolling convention in use.
A compounding instrument adds the previously accrued interest to the principal each period, applying compound interest.
Read more about this topic: Accrued Interest
Famous quotes containing the word formula:
“Given for one instant an intelligence which could comprehend all the forces by which nature is animated and the respective positions of the beings which compose it, if moreover this intelligence were vast enough to submit these data to analysis, it would embrace in the same formula both the movements of the largest bodies in the universe and those of the lightest atom; to it nothing would be uncertain, and the future as the past would be present to its eyes.”
—Pierre Simon De Laplace (1749–1827)
“Every formula which expresses a law of nature is a hymn of praise to God.”
—Maria Mitchell (1818–1889)
“In the most desirable conditions, the child learns to manage anxiety by being exposed to just the right amounts of it, not much more and not much less. This optimal amount of anxiety varies with the child’s age and temperament. It may also vary with cultural values.... There is no mathematical formula for calculating exact amounts of optimal anxiety. This is why child rearing is an art and not a science.”
—Alicia F. Lieberman (20th century)