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Calculate
Compound Interest
Below you can find a spreadsheet to calculate
compound interest easily...
Compound interest appears when interest is added to the principal, so
that from that instant on, the interest that has been
added earns interest, too. The addition to the
principal is called compounding. For example, an ordinary bank
account may have its interest compounded every year. In that
case, an account with $100 initial principal and 10% interest per year
would have a balance of $110 at the end of the first year, and $121 at
the end of the second year.
In order to define an interest rate fully, the interest rate and
the compounding frequency
must be disclosed. Compound interest may be compared with simple
interest, where interest isn't added to the principal.
Compound interest is standard in finance and economics
The compound interest
formula is
given by:
where
A = amount, or ending balance
P = principal
r = annual interest rate
n = compounded times per year
t = number of years
Continuous compounding
Continuous compounding is another concept that can be thought of as
making the compounding period infinitesimally small.
This formula works is:
A = P e^{rt}
where
A = ending balance
P = principal
e = 2.718281...
t = number of years
r = annual interest rate
Example:
Find the
amount of an
investment if $1,000 is invested at 5.6%
compounded monthly for four years.
We enter our data in the calculator below...
Principal
= 1,000.00
Interest rate
per yr = 5.60%
Compounded
times per yr = 12
Time in years
= 4
And we get our results
Amount
= 1,250.42
With
continuously compound interest = 1,251.07
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Compound Interest Calculator
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