Question:

What is the formula to calculate cumulative interest?

Answer:

The formula to calculate cumulative interest is basically (FV/PV)-1, where FV is future value, and PV is the present value of the principal. Calculating cumulative interest ignores the annual compounding approach and presumes compounding on every payment date.

Cumulative interest can be computed if you know the loan amount, the rate and the compounding periods.

Different formulas can be used to calculate cumulative interest for you. There are also many Excel formulas that can be used to calculate interest according to different known parameters.

For example, a $10,000 loan with cumulative interest of 10% based on quarterly compounding will accumulate interest of $1113.06 over 390 days.

Another example: Cumulative interest of a $200,000 loan at 7.25% will be around $14,992 for the first twelve months if based on monthly compounding.

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