I need an on-lline calculator to give me the effective yearly interest earned. I will enter initial dollar amount, dollar amount earned, and term in months. As in
$1200, earned $350, and term was 22 months.
I couldn’t find one online but if you have a scientific calculator, there’s a fairly easy way to do it yourself.
Assuming you’re talking about continuously compounded interest, start with A=Pe[sup]rt[/sup]
A is the Amount you have now (in your example, $1550)
P is your starting Principle ($1200)
e is simply e, which is about 2.7 but you won’t have to worry about that.
r is the interest rate (what you want to know)
t is the time (22 months)
Take the natural log of each side.
lnA = lnPe[sup]rt[/sup]
Multiplying two numbers is equivalent to adding their logs, so:
lnA = lnP + lne[sup]rt[/sup]
The natural log of e[sup]x[/sup] is just x (trust me), so:
lnA = lnP + rt (remember I said you wouldn’t need to worry about e?)
Now just calculate the natural logs (on a scientific calculator it’s the ‘ln’ button)
lnA = 7.34601
lnP = 7.09007
and find rt
7.34601 -
7.09007
0.25594 = rt
Since t = 22 months, divide this number by 22 to get the monthly interest (1.16%) or by (22/12) to get the annual interest (13.96%)
Basically, just take the natural log of the current amount and the starting principle, subtract them, and the answer will be equal to the interest rate multiplied by the time.
Answer: it depends on how you want to consider the interest compounded. Credit cards compound daily (well, daily based on average daily balance), for example, which does correspond to an APR in terms of DPR*365.
If you want to consider it only compounded yearly, or continuously, the answer is different. Here is a general formula for anything but continuously compounded interest:
P = principle
F = final total
I = 1+R (that is, 1 + PercentageRate/100)
t = time compounded
I[sup]t[/sup]P = F
I’m assuming you want to solve for R = I - 1. Derivation follows:
I[sup]t[/sup]P = F
I[sup]t[/sup] = F/P
t ln(I) = ln(F/P)
ln(I) = [ln(F/P)]/t
I = e[sup][ln(F/P)]/t[/sup]
R = e[sup][ln(F/P)]/t[/sup] - 1
Which I whipped up in an excel spreadsheet.
Compounded monthly, your monthly interest rate over 22 months was
0.011701266 or about 1.17%, corresponding to an APR of 14.042%.
Compunded yearly: 0.149814099, or about 14.981% APR.
Compounded daily: 0.000382539, or about 13.963% APR.