subject: Compound Interest Formula: Yes To Investing! [print this page] The compound interest formula is used in solving word problems or simply knowing how much youll gain through compounding interest. The compound interest formula compounds interest in certain periods like every end of the month, every day, every year, and etc. Every time this happens, the interest gets added to the total amount of the principal amount or the amount that is originally used. This is how you can make money work for you!
Yes To Investing With Compound Interest Formula
The most common purpose for the compound interest formula is through investments in saving accounts in banks. You can check how much youll profit from a years investing. Some invest for a year without adding more money or taking out any. After this, the investor will gain from it without doing anything. The next year, you can use the compound interest formula through making up scenarios and see what is best for your investment. You will also have a bigger principal amount next year due to the compound that happened in the savings account. This would happen if your account compounds interest yearly. What more if your account compounds more often than yearly. So invest now and say no to borrowing money!
Today, compound interest calculators that use the compound interest formula are available for our convenience. Instead of manually computing for certain properties of compound interest, you can do it automatically with just a push of a button. But if you really want to master how compounding interest works then manually computing it would be the best. Using the compound interest formula, you can also have more approximate answers to scenarios or to what your current investment term is.
What is the compound interest formula for investments in a savings account with yearly compounding of interest?
Compound Interest = P * ([r/100] + 1) t 1
P stands for the original amount or your first deposited amount in the savings account.
r stands for the yearly interest rate of the savings account.
t stands for the period or total time of your investment, usually the number of years you are going to invest.
Now, if I will be investing 2,000 for 3 years with the annual interest rate of 4% how much will I profit if the interest gets compounded once a year?
Using the compound interest formula, we first put the correct inputs to their corresponding places in the formula.
? = 2000 ([4/100] + 1)3 1
? = 2000 ([0.04] + 1)3 1
? = 2000 (1.04)3 1
? = 2000 (1.124864) 1
? = 2249.728 1
? = 2248.728
Using the compound interest formula, you can have a total of $2248.73 with just three years of saving $2,000 and not doing anything.
by: William Ava
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