Compound interest

Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on.

Formula

• Amount = Principal + Interest

The amount A from a certain principal P after appying compound interest at the rate of 100r% per year in t years n times is

$A = P \left( 1+\frac{r}{n} \right) ^{ n t }$

• If A = amount, P = principal, r = rate percent yearly (or every fixed period) and n is the number of years (or terms of the fixed period) the interest rates for the successive fixed periods are r₁%, r₂%, r₃% ..., then A (amount) is given by

$A = P \left[ \left( 1+\frac{r_1}{100} \right) \left( 1+\frac{r_2}{100} \right) \left( 1+\frac{r_3}{100} \right) ... \right] ^{ n t }$

See also

• Euler's number, where compounding continuously yields e.

Detailed Explanation on Compounding Interest