Compound interest

 In this lesson we're going to learn about the compound interest. Compound interest is when you invest your money on bank etc, you get a interest from them for investing your money. Instead of simple interest is you have to give the bank a interest when you're borrowing money from them.

 To find the compound interest, you have to add the principal by interest by the number of year OR
in easy and time consuming, you can do this:
   A = P(1 + R)N
A = Total amount of interest.
P = Principal.
R = Rate.
N= number of years.

 For example "Find the compound interest earned if $12000 is invested for 5 years at 14% p.a if interest is compounded yearly. Answer to the nearest cent."

  First I'll show you the original way to find the compound interest.
$12000 + 14% x 12000
= $13680

$13680 + 14% x 13680
= $15595.20

$15595.20 + 14% x $15595.20
= $17778.53

$17778.53 + 14% x $17778.53
= $20267.52

$20267.52 + 14% x $20267.52
= $23104.97

I.e interest earned = $23104.97 - $12000
= $11104.97

OR

$12000 x ( 1 + 14%)⁵

= 12000 x ( 1.14)⁵
= $23104.97


I,e $23104.97 - 12000
= $11104.97

* The formula for compound interest can be used for inflation.