Compound Interest
Interest on initial principal and accumulated interest.
Definition
Compound interest is calculated on the initial principal and also on the accumulated interest of previous periods. It grows faster than simple interest.
Example
Investing $1000 at 5% compound interest for 3 years grows to $1157.63.
Calculation
A=P×(1 + r)n
Example: Investing $1000 at 5% compound interest for 3 years:
A =1000 ×(1 + 0.05)3
A ≈$1157.63
A =1000 ×(1 + 0.05)3
A ≈$1157.63