Economics
Compound interest
Compound interest is earned on both the original principal and previously accumulated interest.
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A = P × (1 + r / 100)ⁿ
- 01Given
- 02Calculation
- 03Answer
What it means
Compound interest means that earned interest is added to the principal, so each later period earns interest on both the original principal and all previously accumulated interest.
How it works and where it is used
For example, 100,000 at 10% becomes 110,000 after one year and 121,000 after two years because the second 10% is applied to 110,000. It is used for compounding deposits, long-term investments, and debt growth; simple interest is calculated only on the original principal.