compound interest formula
The compound interest formula is a mathematical equation used to calculate the accumulated interest on an initial amount of money, called the principal, over a certain period of time
The compound interest formula is a mathematical equation used to calculate the accumulated interest on an initial amount of money, called the principal, over a certain period of time. Compound interest is different from simple interest as it takes into account the interest earned on the principal amount as well as the interest earned on previously accumulated interest.
The compound interest formula is given as follows:
A = P(1 + r/n)^(nt)
Where:
A is the total amount after the compound interest has been applied.
P is the principal amount (initial amount of money).
r is the annual interest rate (expressed as a decimal).
n is the number of times that interest is compounded per year.
t is the time period (in years) for which the interest is calculated.
In the formula, the term (1 + r/n)^(nt) represents the compound factor, which determines how much the principal amount will grow over time with the application of compound interest.
It is important to note that the time period (t) and the number of times interest is compounded per year (n) must be in the same units (both in months or both in years) for accurate results.
Using the compound interest formula, you can calculate the future value of an investment or determine the interest earned on a loan over time.
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