Accounting Index: How do you calculate Compound Interest?


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


a. FV = PV * (1 + R)n

b. Interest Value = PV * (1 + R)n – P


  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.

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