Find the rate of interest for which 7,50.000 amounts to 10,53,696 after 3 years if the interest is compounded annually. Find the compound interest
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Answer:
Basically, compounding takes place when your earnings grow exponentially as you earn interest on your investment (principal amount and interest) as time passes. The possibilities of the power of compounding are endless, as the investment generates the ability to earn. Also, compound interest only further enhances your earnings time passes and lets your investment grow manifold. Let’s understand what is compound interest and the use of the compound interest calculator in detail.
What is Compound Interest?
Simply put, when interest is added to the principal amount of an investment, loan or deposit, it is known as compound interest. It is called so because the accumulated interest is added to the principal amount and the interest for the upcoming period is calculated on the new amount, which is the principal amount plus the amount of the accumulated interest over the prior period. This process is repeated throughout the investment’s tenure. So basically, the interest is calculated on the compounding of the principal amount and the interest generated previously. The power of compounding lies in the fact that it essentially increases the investment amount every year by factoring in the interest amount generated earlier, thus, giving it a definite edge over simple interest.