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Compound Interest

Interest is the amount that a borrower pays to a lender for the use of the borrowed money. There are two types of interest: Simple interest and compound interest.
The compound interest formula relates principal, interest rate, the number of times interest is compounded per year, and the number of years the money will be on deposit and the ending balance.
The interest rate used for any type of compounding daily, weekly, monthly, semiannually, annually.

Related Calculators
Calculation of Compound Interest Compound Daily Interest Calculator
Compound Interest Monthly Calculator
 

Compound Interest Formula

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Compound Interest = Compound amount - Principal

Where

A = P (1 + $\frac{R}{n}$)$^{nt}$

and

  • P = Principal amount
  • A = Compound amount
  • R = Rate of the interest
  • N = Period of time

How to Calculate Compound Interest?

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Below is the problem based on compound interest:

Example: Find the compound interest on the principal $\$$3000 borrowed at 4% compounded annually for 2 years.

Solution:
Given:  P = 3000, r = 4% = 0.04, n = 1 and t = 2            

Substitute all the above values in the compound amount formula

A = P(1 + $\frac{R}{n}$)$^{nt}$

  = 3000(1 + 0.04)$^{2}$

  = 3000 $\times$ 1.0816
  = 3244.8

Now, compound interest = A - P

                                       = 3244.8 - 3000

                                       = 244.8

Therefore, $\$$ 244.8 is the compound interest.


More topics in  Compound Interest
Continuous Compounding
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