Money is said to be lent at compound interest if the interest is not paid as soon as it falls due but is added to the principal after a fixed period, so that the amounts at the end of the period becomes the principal for the next period.
Formulas:If, P = Principal.
R = Rate of interest.(%)
T = Time.
Amount = Principal + Interest.
Compound interest = Amount - P
- To calculate compound interest Annually:
Amount for compound interest = P 1 + R T 100
Compound interest = P 1 + R T - 1 100
- If the interest is payable half-yearly:
Amount = P 1 + ( R / 2 ) 2T 100
- If the interest is payable Quarterly:
Amount = P 1 + ( R / 4 ) 4T 100
- If interest is payable annually but time is in fraction:
Let, Time = 5 2 years. 3 Amount = P 1 + R 5 X 1 + (2/3) R 100 100
- If interest rates for successive years are different:
Let, r1,r2,r3...are the rates for successive years.
Amount = P 1 + r1 X 1 + r2 X 1 + r3 100 100 100