Compound Interest Formula
In compound interest the interest is reinvested each year and
therefore each interest amount for each year is different i.e. interest
increase with passage of time. Future value in case of compound interest is
calculated by the following formula
Future value
= P (1+r) n
P= Present Value
r= rate of interest
n= number of period
Compound Interest Formula Example
Mr, Khalil
invested $ 50,000 in a bank for three year a@ 6% per annum. What amount Mr.
Khalil would receive in three year assuming the compound interest rate?
Future value
= P (1+r)n
= $ 50,000(1.06)3
=$ 59,550
Interest =
future value – present value
= 59,550-50,000
=9,550
