DEFINITION

Compound Interest  is the interest on an amount(loan, investment, deposit) calculated using the Present Value and the accumulated interest from previous year(s).

FORMULAS

a. FV = PV * (1 + R)ⁿ

b. Interest Value = PV * (1 + R)ⁿ – P

3 THINGS TO NOTE

1. FV = Future Value, PV = Present Value or Original Investment, 1 = Year One R = Rate of Interest(In percentage), n = Number of years.
2. The formula above can be re-arranged to calculate other values, as long as you know the other three:
   1. P = FV/(1 +R)ⁿ
   2. R = (FV/P)^1/n – 1
   3. n = ln(FV / PV)/ln(1 + r). In is the logarithm function on the calculator.

3. The number of years (n) can significantly increase the original value.