Calculate Hourly Compounding Interest: Formula & Example

How to Calculate Hourly Compounding Interest. Knowing how to calculate hourly compound interest is useful in evaluating the utility of short-term loans and other financial options. Once you know the value of certain variables, making the correct calculation is merely a function of plugging the values into a simple formula.

Step 1

Determine the value of the following amounts: the initial value of the loan, the hourly compound interest rate, and the number of hours that have elapsed since compound interest began accruing. These three values correspond to the variables L, i and h respectively.

Step 2

Insert these values into the following formula: L times (1 + i)^h = F. F represents the total amount owed on the loan, including the compound interest.

Step 3

Solve the formula for F. If you only want to know the amount of interest that has accrued independent of the initial value of the loan, subtract the value of L from the value of F.

Tip

Be careful in solving for F. For example, if you've borrowed $1,000 at eight percent hourly interest, and interest has been accruing for seven hours, the values for your formula would be 1,000 for L, .08 for i and 7 for h. Therefore, F would equal 1,000 times (1 + .08)^7, which is 1713.82. Compound interest equations typically round up to the nearest cent.

Warning

Don't express i as a whole number unless the compound interest as expressed in a percentage is a multiple of one hundred. For example, nine percent interest gives i a value of .09, not 9. Don't multiply with L before you've determined the value of (1+i)^h. Solve exponents before solving products.