Understanding Compound Interest

Front

Compound Interest

Back

Interest on initial principal and accumulated interest

Front

Compound Interest Formula

Back

A = P(1 + \frac{r}{n})^{nt}

Front

A in the formula

Back

Final amount

Front

P in the formula

Back

Principal amount

Front

r in the formula

Back

Annual interest rate (decimal)

Front

n in the formula

Back

Number of times interest applied per year

Front

t in the formula

Back

Time in years

Front

Example: P = 1000, r = 5%, n = 1, t = 2

Back

A = 1000(1 + \frac{0.05}{1})^{1 \times 2} = 1102.50

Front

Example: P = 500, r = 4%, n = 4, t = 3

Back

A = 500(1 + \frac{0.04}{4})^{4 \times 3} = 563.86

Front

Real-life: Savings Account

Back

Earns compound interest over time