Calculating Compound Interest

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What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

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Formula for Compound Interest

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A = P(1 + r/n)^(nt) where A = the future value of the investment/loan, P = the principal investment amount, r = annual interest rate (decimal), n = number of times that interest is compounded per year, t = the number of years the money is invested or borrowed.

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What does 'P' stand for in the compound interest formula?

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P stands for the principal amount, which is the initial sum of money invested or borrowed.

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What does 'r' represent in the compound interest formula?

Back

r represents the annual interest rate expressed as a decimal.

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What does 'n' represent in the compound interest formula?

Back

n represents the number of times that interest is compounded per year.

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What does 't' represent in the compound interest formula?

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t represents the time the money is invested or borrowed for, in years.

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Calculate the future value: Principal: $5000, Interest Rate: 3.75%, Time: 25 years, Compounded Monthly.

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Future Value = $12,749.30

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Calculate the future value: Principal: $7400, Interest Rate: 9.5%, Time: 8 years, Compounded Quarterly.

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Future Value = $15,683.28

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Calculate the future value: Principal: $25,690, Interest Rate: 5.2%, Time: 5 years, Compounded Monthly.

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Future Value = $33,299.42

Tags

CCSS.HSF.BF.A.2

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Calculate the future value: Principal: $195,000, Interest Rate: 4.3%, Time: 30 years, Compounded Annually.

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Future Value = $689,546.99