Compound Interest

Interest computed on the principal amount to which interest earned to-date has been added. Where compound interest is applied, the investment grows exponentially and not linearly as in the case of simple interest.

Formula: Principal x {(Annual interest rate ÷ 100) + 1}^number of years.

For example, $1,000 at an annual compound interest rate of 10 percent will, in 5 years, be: 1000 x {(10 ÷ 100) + 1}^5 = $1,6105.51.

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