Compound Interest Formula

Compound Interest Formula

Compound interest is quite different from the simple interest. In compound interest the interest is not received by the investor each year , instead such interest is reinvested each year , therefore investor earn interest not only on principal amount but also on interest earn till the maturity.

Future value = P (1+r) ⁿ

P= Present Value

r= rate of interest

n= number of period

Example

Bank Deposit= 150,000

Rate of interest = 8%

Solution 

Future value = P (1+r)ⁿ

= $ 150,000(1.08)³

=$ 188,956.8

Interest for three years = future value – present value

= 188,956.8-150,000

=38,956.8