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•

aggi
I'm working out annual compound interest and trying to get my head around which is the correct method.

Normally I'd just do
```
X * (1+r)^p
```
with X being the principal, r the rate and p the number of time periods.

So for 1,000,000 at 12% per annum from 1 July 2017 to 31 December 2019 (913 days) it is
```
1,000,000 * (1+.12)^(913/365)
```
But I'm running into issues with part years. Say I'm looking at interest from 1 July 2017 to 31 December 2019

Using the formula above gives me 1,327,738
However, if I compound for 2 years I get 1,254,400
If I then multiply that by 12% multiplied by 183/365 (1 July 19 to 31 December 19) I get 1,329,870 when I would expect them to be the same. What am I missing?

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gbj_tester in reply to @aggi

What am I missing?

That 12% a year is not the same as 6% every six months. To work out interest on part years, you need to calculate what rate for a given time period is equivalent to 12% PA. For a half years, that's about 5.83%

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