Therefore compound interest CI P 1. For many long-term financial transactions compound interest is used instead of simple interest. They are classified as functional maths meaning that you might use this type of calculation in real life.
In comparing quantities we have a formula for calculating the value of compound interest.
Several formulas were introduced to solve problems involving simple interest. The compound interest formula is A P1rn to the power of nt Compounding Interest Pros and Cons. A the future value of the investmentloan including interest P the principal investment amount the initial deposit or loan amount r the annual interest rate decimal n the number of times that interest is compounded per unit t t the time the money is invested or borrowed for. Frac R 100 100R.