Enter the accumulated amount, interest rate per period, and the number of periods to determine the principal.
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Reverese Interest Formula
The following formula is used to calculate the principal amount given the interest rate and accumulated amount.
P = A / (1 + r) ^n
- Where P is the principal amount ($)
- A is the accumulated amount ($)
- r is the interest rate per period(decimal)
- n is the number of periods
Reverse Interest Definition
A reverse interest is a process of calculating a principal amount on an investment or loan given the accumulated amount, interest rate per period, and a number of periods.
Example Problem
How to calculate a reverse interest?
First, determine the accumulated amount. For this problem, over a term of 5 years, the accumulated amount is found to be $400,000.00.
Next, determine the interest rate per period. This is found to be 5% per year. This will be converted to a decimal of .05 for calculations.
Next, determine the total number of periods. As mentioned above, this is a time period of 5 years.
Finally, calculate the principal amount using the reverse interest formula.
P = A / (1 + r) ^n
= 400,000/ (1+.05)^5
= $313,410.47
