Compound interest formulas and tricks

 Compound interest formulas and tricks

Dear Friends, We are sharing Compound Interest formulas and tricks for various types’ competitive exams. You may refer following notes that may very useful.

Compound interest is the interest that is calculated not only on the principal amount, but also on the accumulated interest from previous periods. Here are some formulas and tricks for compound interest:

1. Future Value Formula: The future value (FV) of an investment is the principal amount (P) multiplied by the interest rate (r) raised to the power of the number of compounding periods (n) over a period of time (t). FV = P(1 + r/n)^(n*t)
2. Present Value Formula: The present value (PV) of an investment is the amount of money that would need to be invested now to achieve a certain future value. PV = FV / (1 + r/n)^(n*t)
3. Compounding Frequency: The more frequently interest is compounded, the greater the amount of interest earned. For example, if a $100 investment earns 10% annual interest and is compounded monthly, it will earn more interest than if it is compounded annually.
4. Rule of 72: The rule of 72 is a quick way to estimate how long it will take for an investment to double in value. Divide 72 by the annual interest rate (r) to get the approximate number of years it will take for the investment to double in value.
5. Continuous Compounding: In continuous compounding, interest is calculated and added to the principal constantly, resulting in a higher return. The formula for continuous compounding is FV = Pe^(rt), where e is the mathematical constant approximately equal to 2.71828.

 

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