The compound interest formula is the way that compound interest is determined. A P 1 r m mt. Compound interest - meaning that the interest you earn each year is added to your principal so that the balance doesnt merely grow it grows at an increasing rate - is one of the most useful concepts in finance.
A the future value of the investmentloan including interest P the principal investment amount the initial deposit or loan amount r the annual interest rate decimal n the number of times that interest is compounded per unit t t the time the money is invested or borrowed for.
Use the compound interest formula to compute the total amount accumulated and the interest earned. Exponential Growth and Decay One very important exponential equation is the compound -interest formulawhere A is the ending amount P is the beginning amount or principal r is the interest rate expressed as a decimal n is the number of compoundings a year and t is the total number of years. Heres the semi-annual compound interest formula. It is the basis of everything from a personal savings plan to the long term growth of the stock market.