Video:How to Find Compound Interest

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Transcript:How to Find Compound Interest

When you borrow money from a bank, you pay interest.

What Is Interest?

Interest is really a fee charged for borrowing the money, it is a percentage charged on the principle amount for a period of a year - usually.

What Is Compound Interest?

Compound interest is paid on the original principal and on the accumulated past interest.

Tips for How to Calculate Compound Interest

To calculate the Compound Interest on a certain amount of money we need to use the formula A = P(1 + r)n

Here, A is the amount of money accumulated after n years, including interest.P is the principal (or the initial amount you borrow or deposit)r is the annual rate of interest (or percentage)n is the number of years the amount is deposited or borrowed for.

Interest Compounded Once Per Year

When the interest is compounded once a year, the formula would look like this:A=P(1+r)However, if you borrow for 5 years the formula will look like:A = P(1 + r)5

This formula applies to both money invested and money borrowed.However, when the interest is paid more frequently, the formula has to be changed: Annually compounding, the formula is P × (1 + r) For Quarterly compounding, the formula is P (1 + r/4)4 For monthly compounding, the formula is P (1 + r/12)12

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