The compound interest formula is P 1in - P where P is the principal i is the annual interest rate and n is the number of periods. Derivation of Compound Interest Formulas There is some logic to the creation of the compound interest formulas shown in Illustration 10-1 of the text. The next example illustrates the difference Unit 83 Compound interest a Understanding how compound interest differs from simple interest Trish and Hannah each have 100.
Hence for the cases when the rate is compounded half yearly we divide the rate by 2 and multiply the time by 2 before using the general formula for amount in case of compound interest.
It is the result of reinvesting interest rather than paying it out so that interest in the next period is then earned on the principal sum plus previously accumulated interest. 1 SI P x R x T100 2 Principal Simple Interest 100 R T 3 Rate of Interest Simple Interest 100 P T 4 Time Simple Interest 100 P R 5 If rate of Simple interest differs from year to year then. End of interest earned amount at end of period Year 1 50 550 50011 Year 2 55 605 5001111 Year 3 605 6655 500113. 100 in 1 year with annual compounding your rate is 6091000609609.