Financial Modeling Tutorials

- Financial Modeling Basics
- Excel Modeling
- Financial Functions in Excel
- Sensitivity Analysis in Excel
- 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
- Weighted Mean Formula
- Harmonic Mean Formula
- Median Formula in Statistics
- Range Formula
- Expected Value Formula
- Exponential Growth Formula
- Margin of Error Formula
- Decrease Percentage Formula
- 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
- Relative Standard Deviation Formula
- Volatility Formula
- Binomial Distribution Formula
- Quartile Formula
- P Value Formula
- Skewness Formula
- Regression vs ANOVA

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

## What is Monthly Compound Interest Formula?

When interest is compounded on a monthly frequency it is known as monthly compound interest. In monthly compounding interest is charged both on the principal as well as the accumulated interest. For the calculation of monthly compounding, it is important to know the principal portion the time frame and the annual interest charged by the lenders.

The equation for calculating the monthly compound interest is represented as follows,

**A= (P (1+r/n)^(nt)) – P**

Where

- A= Monthly 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 monthly compounding interest. The higher the frequency the more the interest charged or paid on the principal. For example, the interest amount for monthly compounding will be higher than the interest amount for quarterly compounding. This is the business model of a bank in a broader way where they make money in the differential of the interest paid for the deposits and the interest receives for the loan disbursed.

### Examples of Monthly Compound Interest Formula (with Excel Template)

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

#### Example #1

**Let us know to try to understand how to calculate monthly compound interest with the help of an example. 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 monthly compounded interest charged by the bank on the loan provided.**

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Below is the given data for the calculation of monthly compound interest.

The Monthly Compound Interest can be calculated as,

= ($4000(1+.08/12)^(12*2))-$4000

**Monthly Compound Interest will be –**

**Monthly Compound Interest = $691.55**

So from the formula of calculating the monthly compound interest, the monthly interest will be $ 691.55.

#### Example #2

**Let us know try to understand how to calculate monthly 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 monthly compounded interest charged by the bank on the loan provided.**

Below is the given data for the calculation of monthly compound interest.

The Monthly Compound Interest can be calculated as,

= ($35000(1+.07/12)^(12*5))-$35000

**Monthly Compound Interest will be –**

**Monthly Compound Interest = $14,616.88**

So from the formula of calculating the monthly compound interest, the monthly interest will be $ 14,617.

#### Example #3

**Let us know try to understand how to calculate monthly compound interest with the help of another example. A sum of $1, 00,000 is borrowed from the bank as a home loan where the interest rate is 5% per annum and the amount is borrowed for a period of 15 years. Let us find out how much will be monthly compounded interest charged by the bank on the loan provided. **

Below is the given data for the calculation of monthly compound interest.

The Monthly Compound Interest can be calculated as,

= ($60000(1+.05/12)^(12*8))-$600000

**Monthly Compound Interest will be –**

**Monthly Compound Interest = $29435**

So from the equationMonthly Compound Interest Formula Excel Template of calculating the monthly compound interest, the monthly interest will be $ 29,435.

### Relevance and Uses of Monthly Compound Interest Formula

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 monthly 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.

### Recommended Articles

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

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