Compound interest formula: A = P(1 + r/n)^(nt)
Interest
Compound interest formula: A = P(1 + r/n)^(nt)
Compound interest is calculated using the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time the money is invested for in years.
Example
If you invest $1,000 at an annual interest rate of 5% compounded monthly for 10 years, the amount accumulated is A = 1000(1 + 0.05/12)^(12*10) = $1,647.01.
Remember this
Understanding the compound interest formula helps investors and savers calculate the future value of their investments or savings, enabling them to make informed financial decisions.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Net present value
NPV = Present Value of Future Cash Flows
d₁ and d₂ are in Black-Scholes: d₁ = [ln(S/K) + (r + σ²/2)T] / (σ√T), d₂ = d₁ - σ√T
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D₁/(r - g) = stock price
Yield curve
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Educational content, not financial advice.
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