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Compound interest

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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

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