Compound Interest Formula source.docx

# This means we end up with 5000 16470095042509848

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This means we end up with: 5000 × 1.6470095042509848 = 8235.0475. You may have seen some examples giving a formula of A = P ( 1+r ) ^ t . This simplified formula assumes that interest is compounded once per period, rather than multiple times per period. The benefit of compound interest The full benefit of compound interest will become clear when I tell you that without it, your investment balance in the above example would be only \$7,500 (\$250 per year for 10 years, plus the original \$5000) by the end of the term. So, thanks to the wonder of compound interest, you will gain an additional \$735.05. Interactive compound interest formula Use the calculator below to show the formula and resulting compound interest calculation for your chosen figures. Note that this calculator requires JavaScript to be enabled in your browser. Principal amount (P): Annual rate (r): Compounds per year (n): Years (t): P ( 1 + r n ) ( n t ) = A For a comprehensive set of tools for calculating compound interest on your savings, please see our compound interest calculators .

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On the next page we look at the formula for compound interest with monthly contributions (how you can add a regular, additional monthly deposit) and the future value formula .
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• Spring '11
• Psychology, compound interest formula

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