Compound Interest Formula | Simple Interest Vs Compound Interest

Simple Interest – It is interest amount calculated on base principal amount. E.g. You have borrowed Rs. 1000 @12% p.a. interest rate for 3 years and you need to pay interest every year. Then you will be paying interest (1000*12% = 120) every year.

Simple Interest Calculation

Compound interest –  Compound interest, or ‘interest on interest’, is calculated with the compound interest formula. E.g. You have borrowed Rs. 1000 @12% p.a. interest rate and you need to pay total amount after 3 years. Then you will be paying interest on interest amount also.         

Compound Interest Calculation
Formula
Calculation
  • Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
  • Compound interest is calculated by multiplying the initial principal amount by one plus the annual interest rate raised to the number of compound periods minus one.
  • Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
  • When calculating compound interest, the number of compounding periods makes a significant difference.

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