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what is compound interest equation. Compound interest is calculated on the principal amount and also on the accumulated interest of previous periods and can thus be regarded as interest on interest There can be a big difference. This cycle leads to increasing interest and account balances at an increasing rate sometimes known as exponential growth.
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Exponential Growth and Decay One very important exponential equation is the compound -interest formulawhere A is the ending amount P is the beginning amount or principal r is the interest rate expressed as a decimal n is the number of compoundings a year and t is the total number of years. The compound interest formula is A P1rn to the power of nt Compounding Interest Pros and Cons. This cycle leads to increasing interest and account balances at an increasing rate sometimes known as exponential growth.
Compound interest accrues over the period a loan or a deposit is outstanding.
In simple interest the interest is not added to the principal while calculating the interest during the next period while in the compound interest the interest is added to the principal to calculate the interest. In the simplest terms its interest on interest. Depending on the type of financial instrument youre managing compounding interest can either help you or hurt you. Using the same information above enter Principal.
