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Periodic Rate

By Contributor on August 20, 2018

R/P = I

Where

R = Annual interest rate

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P = Number of periods

I = Periodic rate

The periodic rate is used to calculate interest rate that has been charged on a loan over a specific period of time.

It is simply calculated by dividing the annual interest with the number of periods.

This rate can then be used to calculate monthly compounding interest on a loan, as well as daily.

For example, if the annual rate is 6% with a monthly period, the monthly periodic rate would be

0.06/12 = 0.005 or 0.5%

We can then use this to calculate the compounding interest

On a $100,000 compounding interest for 7 months would be

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(1 + 0.005)⁷ = 1.0355

Then, 1.0355 x $100,000 = $103,550

The dollar amount after 7 months would be $103,550.