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

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

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