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

Use compound interest in a sentence

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discounted future benefits Annual Percentage Rate