Compound Interest Math Def

Work out the interest for the first period add it to the total and then calculate the interest for the next period and so on like this.

Compound interest math def. Interest calculated as a percent of the original loan. A p 1 r n. A is the amount of money accumulated after n years including interest. P 1 i n 1 where p.

N number of periods. Where interest is calculated on both the amount borrowed plus previous interest. A 3 year loan of 1 000 at 10 costs 3 lots of 10 so the interest is 3 1 000 10 300 simple interest is almost never used in the real world with compound interest being preferred. Usually calculated one or more times per year.

The compound interest can be found with the formula. Compound interest arises when interest is added to the principal so that from that moment on the interest that has been added also itself earns interest. When the interest is compounded once a year. Work out the interest for the first period add it to the total and then calculate the interest for the next period and so on like this.

Fv future value pv present value r interest rate as a decimal value and. You ll have 105 after one year 110 25 after two years 115 76 after three years and 127 63 after five years. Calculating interest on both the amount borrowed plus previous interest. Compound interest total amount of principal and interest in future or future value less principal amount at present or present value p 1 i n p.

In the formula a represents the final amount in the account after t years compounded n times at interest rate r with starting amount p. Fv pv 1 r n. Pv fv 1 r n. To calculate compound interest use the formula below.

This addition of interest to the principal is called compounding. A p 1 r k kt a p 1 r k k t. However if you borrow for 5 years the formula will look like. A p 1 r 5.

For example say you earn 5 compound interest on 100 every year for five years. When the interest you earn on an investment is added to form the new base on which future interest accumulates it is compound interest. The basic formula for compound interest is. N is the number of years the amount is deposited or borrowed for.