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what is compound interest formula. Compound Interest Formula P principal amount the initial amount you borrow or deposit r annual rate of interest as a decimal t number of years the amount is deposited or borrowed for. The compound interest formula is A P1rn to the power of nt Compounding Interest Pros and Cons.
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Depending on the type of financial instrument youre managing compounding interest can either help you or hurt you. To calculate the amount of compound interest you would accrue every year you can use the following formula. It goes on and on.
It is used in case the interest is earned by the investor on principal as well as previously earned interest part of the investment.
If youre curious about compound interest and how it works good for you youre on the right track. Monthly compounding is calculated by principal amount multiplied by one plus rate of interest divided by a number of periods whole raise to the power of the number of periods and that whole is subtracted from the principal amount which gives the interest amount. Compound interest is the addition of interest to the principal sum of a loan or deposit or in other words interest on interest. A P 1 r n nt A the amount of money accumulated after n years including interest P the principal amount your initial deposit or your initial.
