Financial Modeling Tutorials

- Financial Modeling Basics
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- Financial Functions in Excel
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- Time Value of Money
- Future Value Formula
- Present Value Factor
- Perpetuity Formula
- Present Value vs Future Value
- Annuity vs Pension
- Present Value of an Annuity
- Doubling Time Formula
- Annuity Formula
- Annuity vs Perpetuity
- Annuity vs Lump Sum
- Internal Rate of Return (IRR)
- NPV vs XNPV
- NPV vs IRR
- NPV Formula
- PV vs NPV
- IRR vs ROI
- Break Even Point
- Payback Period & Discounted Payback Period
- Payback period Formula
- Discounted Payback Period Formula
- Profitability Index
- Cash Burn Rate
- Simple Interest
- Simple Interest vs Compound Interest
- Simple Interest Formula
- CAGR Formula (Compounded Annual Growth Rate)
- Effective Interest Rate
- Loan Amortization Schedule
- Mortgage Formula
- Loan Principal Amount
- Interest Rate Formula
- Rate of Return Formula
- Effective Annual Rate
- Effective Annual Rate Formula (EAR)
- Daily Compound Interest
- Monthly Compound Interest Formula
- Discount Rate vs Interest Rate
- Rule of 72
- Geometric Mean Return
- Real Rate of Return Formula
- Continuous compounding Formula
- Weighted average Formula
- Average Formula
- Average Rate of Return Formula
- Mean Formula
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- Median Formula in Statistics
- Range Formula
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- Percent Error Formula
- Holding Period Return Formula
- Cost Benefit Analysis
- Cost Volume Profit Analysis
- Opportunity Cost Formula
- Mortgage APR vs Interest Rate
- Regression Formula
- Correlation Coefficient Formula
- Covariance Formula
- Coefficient of Variation Formula
- Sample Standard Deviation Formula
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- Volatility Formula
- Binomial Distribution Formula
- Quartile Formula
- P Value Formula
- Skewness Formula
- Regression vs ANOVA

**Daily Compound Interest Formula (Table of Contents)**

## What is Daily Compound Interest?

When interest is compounded on a daily frequency it is known as daily compound interest. In daily compounding interest is charged both on the principal as well as the accumulated interest. For the calculation of daily compounding, it is important to know the principal portion the time frame and the annual interest charged by the lenders. This is mostly applicable in case of credit cards. The higher the frequency the more the interest charged or paid on the principal. For example, the interest amount for daily compounding will be higher than the interest amount for quarterly compounding.

### Daily Compound Interest Formula

The formula for calculating daily compound interest is

**A=(P (1+r/n)^(nt)) – P**

Where

- A=Daily compound rate
- P=Principal amount
- R=Rate of interest
- N=Time period

Generally, when someone deposits money in the bank the bank pays interest to the investor in the form of quarterly interest. But when someone lends money from the banks the banks charge the interest from the person who has taken the loan in the form of daily compounding interest. This scenario is mostly applicable in the case of credit cards.

### Examples of Daily Compound Interest Calculation (with Excel Template)

Let’s see some simple to advanced examples of the daily compound interest calculation to understand it better.

#### Example #1

**Let us know to try to understand how to calculate daily compound interest with the help of an example. **

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**A sum of $4000 is borrowed from the bank where the interest rate is 8% and the amount is borrowed for a period of 2 years. Let us find out how much will be daily compounded interest calculation by the bank on the loan provided.**

**Solution:**

Daily Compound Interest Calculation = ($4000(1+8/365)^(365*2))-$4000

**Daily Compound Interest** = **$693.96**

#### Example #2

Let us know to try to understand how to calculate daily compound interest with the help of another example. Daily compounding is practically applicable for credit card spending which is charged by the banks on the individuals who use credit cards. Credit cards generally have a cycle of 60 days during which time the bank does not charge any interest, but interest is charged when the interest does not pay back within 60 days. If a sum of $4000 is used using a credit card by an individual for its spending. And the interest rate is 15% per annum as the interest charged for a credit card is generally very high. And the amount is repaid by the individual after 120 days that is 60 days after the grace period is over. So the individual needs to pay the bank interest for 60 days and he is charged at a daily compounding rate of interest. Let us find out how much will be daily compounded interest calculation by the bank on the loan provided.

**Solution:**

= $4000(1+15/365)^(365*(12/60))-$4000

**Daily Compound Interest** = **$122**

#### Example #3

**Let us know to try to understand how to calculate daily compound interest with the help of another example. A sum of $35000 is borrowed from the bank as a car loan where the interest rate is 7% per annum and the amount is borrowed for a period of 5 years. Let us find out how much will be daily compounded interest calculation by the bank on the loan provided.**

**Solution:**

= ($35000(1+.07/365) ^ (365*5))-$35000

**Daily Compound Interest** = **$14,665.70**

### Relevance and Use

Generally, when someone deposits money in the bank the bank pays interest to the investor in the form of quarterly interest. But when someone lends money from the banks the banks charge the interest from the person who has taken the loan in the form of daily compounding interest. The higher the frequency the more the interest charged or paid on the principal. This is how the banks make their money on the differential of the interest.

You can download this Daily Compound Interest Formula Excel Template from here – Daily Compound Interest Formula Excel Template

### Recommended Articles

This has been a guide to Daily Compound Interest Formula. Here we discuss how to calculate daily compound interest using its formula along with examples and downloadable excel template. You can learn more about financial analysis from the following articles –

- Financial Analysis Types | Top 10 Best
- Financial Analysis | Top 15 Techniques
- Top 4 Most Common Financial Analysis Tools
- Compound Journal Entry | Definition
- Monthly Compound Interest Formula
- Formula of Compounded Annual Growth Rate
- Continuous Compounding Formula
- Simple Interest vs Compound Interest – Compare
- What is Simple Interest?

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