Compound Interest
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.
Compound Interest Terms
P = Principal.
R = Rate of interest (%).
T = Time.
Compound Interest Formulas
Amount = Principal + Interest.
Compound interest = Amount – P
Formula: To calculate Compound Interest Annually
| Amount for compound interest | = | P |  |
1 + | R |  |
T | 100 |
| Compound interest | = | P |  |
|
1 + | R | |
T | – 1 |  |
100 |
Formula: Compound Interest is Payable Half-Yearly
| Amount | = | P | |
1 + | ( R / 2 ) | |
2T | 100 |
Formula: Compound Interest is Payable Quarterly
| Amount | = | P | |
1 + | ( R / 4 ) | |
4T | 100 |
Formula: Compound 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 |
Formula: If Compound 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 |
