Compound Interest Definition

Compound interest is the interest calculated on the principal and the interest earned previously. It is denoted by C.I. It is very useful for investment and loan repayment purposes. It is also known as “interest on interest”. 

Compound interest is very useful in the banking and finance sectors and is also useful in other sectors. A few of its use are:

  • Growth of the population of a country
  • Value of investment over a period of time.
  • For finding Inflated costs and the depreciated value of any article.
  • For predicting the growth of any institution or country.

Compound Interest (C.I) = Amount – Principal

Compound Interest Formula

Compound Interest is the interest that is calculated against a loan or deposit amount in which interest is calculated for the principal as well as the previous interest earned.

The common difference between compound and simple interest is that in compound interest, interest is calculated for the principal amount as well as for the previously earned interest whereas simple interest depends only on the principal invested.

Table of Content

  • What is Compound Interest?
  • Compound Interest Formula
  • How to Calculate Compound Interest?
  • Compound Interest Formula – Derivation
  • Half-yearly Compound Interest Formula
  • Quarterly Compound Interest formula
  • Monthly Compound Interest Formula
  • Daily Compound Interest Formula
  • Periodic Compounding Rate Formula
  • Rule of 72
  • Compound Interest of Consecutive Years
  • Continuous Compounding Interest Formula
  • Some Other Applications of Compound Interest
  • Difference between Compound Interest and Simple Interest
  • Compound Interest Examples
  • Compound Interest – Practice Questions

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What is Compound Interest?

Compound Interest is interest on the principal amount as well as the interest earned on the principal amount. The word “Compound Interest” is composed of two words “Compound” which means composed of two or more and “Interest” means money earned on lending the amount. Hence, compound interest is the money earned on lending and it is composed of two types of interest which are:...

Compound Interest Definition

Compound interest is the interest calculated on the principal and the interest earned previously. It is denoted by C.I. It is very useful for investment and loan repayment purposes. It is also known as “interest on interest”....

Compound Interest Formula

Compound Interest is calculated, after calculating the total amount over a period of time, based on the rate of interest, and the initial principal. For an initial principal of P, rate of interest per annum of r, time period t in years, frequency of the number of times the interest is compounded annually n, the formula for calculation of CI is as follows:...

How to Calculate Compound Interest?

Compound interest is the interest paid both on principal as well as interest accumulated. The interest earned at each interval is added to the initial principal ad thus principal goes on increasing....

Compound Interest Formula – Derivation

Compound interest formula is a powerful tool used in finance to calculate the interest earned or paid on an initial principal amount, which includes both the initial principal and the interest accumulated over previous periods. The formula for compound interest is given by:...

General Compound Interest Formula

To derive the general compound interest formula, let’s consider compounding interest n times per year....

Half-yearly Compound Interest Formula

Let the principal invested be P and the interest rate is R % per annum which is compounded half-yearly for ‘t’ years...

Quarterly Compound Interest formula

Let the principal invested be P and the interest rate is R % per annum which is compounded quarterly for t years....

Monthly Compound Interest Formula

If the interest is compounded monthly then the number of times of compounding will be 12 and the interest each month will be 1/12 of annual compound interest. Hence, Monthly Compound Interest Formula is given as...

Daily Compound Interest Formula

If interest is compounded daily, then....

Periodic Compounding Rate Formula

Total amount, including principal P and compounded interest CI, is given by:...

Rule of 72

Rule of 72 is the formula that is used to estimate, how many years our money gets doubled if it is compounded annually. For example, if our money is invested at r % compounded annually then it takes 72/r years for our money to get doubled....

Compound Interest of Consecutive Years

If we have the same sum and the same rate of interest. The C.I. of a particular year is always more than C.I of Previous Year. (CI of 3rd year is greater than CI of 2nd year). Difference between CI for any two consecutive years is interest of one year on C.I of preceding year....

Continuous Compounding Interest Formula

Continuous Compounding Formula is used in Finance to calculate the final value of an investment which undergoes continuous compounding over different period and value is added over the time. The formula for continuous compounding is given as...

Some Other Applications of Compound Interest

Growth: This is mainly used for growth if industries are related....

Difference between Compound Interest and Simple Interest

The difference between Compound Interest and Simple Interest can be learned below in this article...

Compound Interest Examples

Some examples on compound interest formulas are,...

Compound Interest – Practice Questions

Various practice questions on compound interests are,...

Conclusion of Compound Interest

Compound interest is a powerful financial concept that allows investments or loans to grow or accumulate over time. Unlike simple interest, which only calculates interest on the initial principal amount, compound interest takes into account the interest earned on both the initial principal and any accumulated interest from previous periods....

Compound Interest – FAQs

What Compound Interest Meaning?...

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