= principal x (1 + interest rate x number of days to repayment/number of days in year)
To give a worked example, consider a sum of £100 invested at an annual interest rate of 8% for three months. You need to establish with your bank the exact number of days for which the investment will last – in our example this is 92. Also you need to ensure that you know the annual basis – whether it is 360 or 365 days depends on the convention in the market in which you are investing.
\(The \: total \: proceeds \: will \: be = 100 \: \times \: 1 \: + \: 0.08 \: \times \:\frac{ 92} {365} = £ 102.02 \)
Conventional calculator
When using a conventional calculator, to perform the calculation above, you would need to press the following buttons:
- 92 ÷ 365 = (this will give the result 0.252)
- x 0.08 = (this will give the result 0.02016)
- + 1 = (this will give the result 1.02016)
- x 100 = (this will give the result 102.016 – which rounds to 102.02)
Scientific calculator
Using the scientific calculator on a Windows computer (Start, Programs, Accessories, Calculator, View, Scientific), you would need to press the following buttons:
100 x 1 + 0.08 * 92 ÷ 365 = (this will give the result 102.016 – which rounds to 102.02)
HP12C
Using an HP12C:
- .08 ENTER
- 92 x 365 ÷ 1 + 100 x (this will give the result 102.016 – which rounds to 102.02)
