Compound Interest Formula Math

A p 1 r n.

Compound interest formula math. Finds the future value where. To make things simpler suppose you borrow at an annual interest rate of. Pv fv 1 r n. A p 1 r n n t a 1 000 000 1 06 12 12 5 a 1 000 000 1 0 005 12 5 a 1 000 000 1 005 60 a 1 348 850 15.

Fv future value pv present value r interest rate as a decimal value and. A p 1 r m m t 3500 1 0 015 4 4 2 3606 39. The value after 2 years will be 3 606 39. P is the principal or the amount of money invested deposited r is the rate of interest per annum compounded m times annually n is the no of years that the money is invested for.

A simpler version of the compound interest formula is b p 1 r n where b is the final balance p is the principal r is the interest rate for 1 or each interest period and n is the number of payment periods. N number of periods. The bank gives you a 6 interest rate and compounds the interest each month. A is the amount of money accumulated after n years including interest.

And by rearranging that formula see compound interest formula derivation we can find any value when we know the other three. Your 1000 would grow to be 1157 62 after three years. The more often the interest is compounded the greater the total which is where you have to be careful. Compound interest or interest on interest is calculated with the compound interest formula.

The principal is the amount of money you deposit that you expect will grow over time. Where is the initial amount you borrowed is the rate of interest where is written as a decimal number such as rather than a percentage and is the number of times the interest is compounded. However if you borrow for 5 years the formula will look like. Fv pv 1 r n.

The formula for compound interest is p 1 r n nt where p is the initial principal balance r is the interest rate n is the number of times interest is compounded per time period and t is the number of time periods. The basic formula for compound interest is. M 1000 1 0 05 3 1157 62. Here s how you would get that answer using the formula and applying it to the known variables.

When the interest is compounded once a year. I would choose option 1. A p 1 r 5. Notation of terms in the above compound interest formula.

R interest rate as a decimal n number of times compounded per year t number of years the compound interest formula will determine a the future value a particular investment will have.