Some concepts relating to compound interest calculation
A fundamental milestone in the interest calculation methods is a form of dependency between time and the amount of interest. The crucial thing in this relation is what we do with the interest generated in a given period -capitalization period, that is, whether they are included in the basis for calculation of interest in subsequent periods or not.
In the case of simple interest calculation an interest is always calculated from initial capital, so the interests are the same for the same capitalization periods.
In the case of compound interest calculation after each capitalization period, interest is added to the main capital so in the next capitalization period an interest is calculated with increased main capital – capitalization of interest
In determining the beginning and the end of the interest period, generally the first day of the start of business is considered as the first day, but the last day is not. In the calculation of interest are considered the actual number of days of the calendar, taking into account the actual number of days in the year (365/366). This is important when the interest rate changes on the first or last day.
The date when the billing period ends is usually also the date of maturity. It may be arranged in a different way. In this case it must be determined if calculation of interest for this period is effecting for this time of interest to those already due and not paid interest.
In the method of compounding interest is increasing progressively.
Compound interest calculation requires the following information: the interest rate, start date and start balance and end date. Intermediate changes enter only if they exist.
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