what is compound interest...... with example.......
Answers
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Cᴏᴍᴘᴏᴜɴᴅ ɪɴᴛᴇʀᴇsᴛ ɪs ᴛʜᴇ ᴀᴅᴅɪᴛɪᴏɴ ᴏғ ɪɴᴛᴇʀᴇsᴛ ᴛᴏ ᴛʜᴇ ᴘʀɪɴᴄɪᴘᴀʟ sᴜᴍ ᴏғ ᴀ ʟᴏᴀɴ ᴏʀ ᴅᴇᴘᴏsɪᴛ, ᴏʀ ɪɴ ᴏᴛʜᴇʀ ᴡᴏʀᴅs, ɪɴᴛᴇʀᴇsᴛ ᴏɴ ɪɴᴛᴇʀᴇsᴛ. Iᴛ ɪs ᴛʜᴇ ʀᴇsᴜʟᴛ ᴏғ ʀᴇɪɴᴠᴇsᴛɪɴɢ ɪɴᴛᴇʀᴇsᴛ, ʀᴀᴛʜᴇʀ ᴛʜᴀɴ ᴘᴀʏɪɴɢ ɪᴛ ᴏᴜᴛ, sᴏ ᴛʜᴀᴛ ɪɴᴛᴇʀᴇsᴛ ɪɴ ᴛʜᴇ ɴᴇxᴛ ᴘᴇʀɪᴏᴅ ɪs ᴛʜᴇɴ ᴇᴀʀɴᴇᴅ ᴏɴ ᴛʜᴇ ᴘʀɪɴᴄɪᴘᴀʟ sᴜᴍ ᴘʟᴜs ᴘʀᴇᴠɪᴏᴜsʟʏ ᴀᴄᴄᴜᴍᴜʟᴀᴛᴇᴅ ɪɴᴛᴇʀᴇsᴛ.
Answer:
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
Step-by-step explanation:
The formula of compound interest is
AMOUNT=Principal (100 + rate/100)^time
Example:
If an amount of 5,000 is deposited into a savings account at an annual interest rate of 5%, compounded monthly, the value of the investment after 10 years can be calculated as follows...
P = 5000.
r = 5/100 = 0.05 (decimal).
n = 12.
t = 10.
If we plug those figures into the formula, we get the following:
A = 5000 (1 + 0.05 / 12) (12 * 10) = 8235.05.
So, the investment balance after 10 years is 8,235.05.