Compound Interest

Posted in Finance, Accounting and Economics Terms, Total Reads: 1105
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Definition: Compound Interest

It is the interest which is calculated on the principal as well as the interest of the last periods. Thus, it allows the principal sum to grow quickly unlike in simple interest calculation where the interest is always calculated as a percentage of initial principal irrespective of the interest of the previous periods.

Calculation:

A= P( 1 + r/n) ^(nt)

Where,

A= Amount to be received after “t” years

P= Initial principal amount

R= rate of interest

n= number of times a year interest is compounded

t= number of years for which the principal is deposited


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