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how compound interest formula derived. Using the prior example the effective rate would be 12683. General Compound Interest Principal 1 Annual Interest RateN NTime.
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Depending on the type of financial instrument youre managing compounding interest can either help you or hurt you. FV PV 1r n. So the basic formula for Compound Interest is.
General Compound Interest Principal 1 Annual Interest RateN NTime.
With that we can work out the Future Value FV when we know the Present Value PV the Interest Rate r and Number of Periods n. Step 1 Start with the compound interest formula shown below. In this video I show you how to derive the compound interest formula. He starts with explaining the basic concepts like principle which is the amount you borrow and the rate of interest or annual percentage rate APR which is the rate at which you pay the interest up on the borrowed principle.
