Compound Interest Formula
Compound Interest Formula
The interest charged on a loan or deposit is known as compound interest. It is the concept that people employ the most frequently on a daily basis. The Compound Interest Formula is calculated for an amount based on both the principal and cumulative interest. The major distinction between compound and simple interest is this.
If a person examines their bank statements, they will typically see that their account is credited with interest on a yearly basis. Even while the principal remains the same, the interest changes annually. They can observe that interest rises over time. As a result, they can infer that the interest the bank charges is compound interest, or CI, rather than simple interest.
Compound Interest Formula
The interest that is calculated using both the principal and the interest that has accrued during the previous period is called the Compound Interest Formula. It differs from simple interest in that the principal is not taken into account when determining the interest for the subsequent period with simple interest. The Compound Interest Formula is commonly abbreviated C.I. in Mathematics.
The majority of transactions in the banking and financial industries, as well as other areas, use the Compound Interest Formula. Some of its uses include:
- Population growth or decline.
- The expansion of bacteria
- Increase or decrease in an item’s value.
The Compound Interest Formula is interest calculated using both the initial principal and interest accrued over time. The following is the Compound Interest Formula:
Amount – Principal = Compound Interest
Notations in Compound Interest Formula:
CI = A – P
In this case, A stands for the updated principle amount or the entire sum of money after the compounding period. P stands for the first or original quantity. The interest rate is expressed as R.
Interest that is calculated on both the principal and prior interest is known as the Compound Interest Formula. It is indicated by the letter C.I. and is particularly helpful for investing and loan repayment. “Interest on interest” is another name for it.
In addition to being helpful in other sectors, the Compound Interest Formula is extremely helpful in the banking and financial industries. Some of its uses include:
- Population expansion in a nation
- The value of an investment over time.
- For determining inflated prices and the diminished value of any item.
Maths Compound Interest Questions with solutions
Question: If the principal is Rs. 6000, the annual interest rate is 10%, and the time period is 2 years, what is the compound interest?
Solution:
First-year interest equals (6000 x 10 x 1)/100, or 600.
Amount at the conclusion of the first year is equal to 6000 plus 600.
Interest for the following year equals (6600 x 10 x 1)/100, or 660.
Total at the end of the second year is 6600 + 660, which is 7260.
Compound Interest is equal to 7260 – 6000, or 1260.
