how do you compute the interest paid on a CD if it is compounded daily and paid monthly...What is the formula?

Answer 1

The previous answers are incorrect (though they may do it that way in the UK).

CDs use Actual/360 daycounting. This means that in order to calculate the interest, you divide the interest rate by 360 (not 365) and compound the actual number of days.

Let's suppose that you invest $100,000 at 4% for the month of July (31 days). You divide 4% by 360 to get the daily rate and compound 31 days.

That is:

End Value = 100,000 * (1+4%/360)^31 = 100,345.02

so you get 345.02 in interest

For June, you would only get 30 days of interest

End Value = 100,000 * (1+4%/360)^30 = 100,333.87

so you get 333.87 in interest.

In February (of 2006) you would have got 28 days of interest

End Value = 100,000 * (1+4%/360)^28 = 100,311.58

which is 311.58

Answer 2

APR/365 times number of days between payments

Answer 3

let r = interest rate
n = number of days the money is in the account
p = original principle
value of the account of n days = (1+r/36500)^(n)

APR = ((1 +r/36500)^365 -1)*100