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compound interest


Definition

Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. Compound interest differs from simple interest in that simple interest is calculated solely as a percentage of the principal sum.

The equation for compound interest is: P = C(1+ r/n)nt

Where:
    P = future value
    C = initial deposit
    r = interest rate (expressed as a fraction: eg. 0.06 for 6%)
    n = # of times per year interest is compounded
    t = number of years invested

Featured Tip

Calculating Compound InterestAll of us are aware of compound interest calculations. Compound interest can grow your money like anything. How exactly do you calculate the compound interest with a given percentage of yearly returns ... Read more


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