In the compound interest formula the principal is symbolized by a P just as in the simple interest formula. Your interest payments will be 5 per year no matter how many years the initial sum of money stays in a bank account. Let us plug these values into the above formula.
Lets solve a few word problems involving simple interest.
Like simple interest compound interest is charged on the principal. So the interest earned is 240. Your interest payments will be 5 per year no matter how many years the initial sum of money stays in a bank account. As the annual Interest is to be calculated the time period T 1.