Compound interest is the interest

calculated on the initial principal amount as well as the

accumulated interest from previous periods. In other
words, it is the interest that is earned on both the initial
investment and any previously earned interest.

The formula for compound interest is:

A = P(1 + r/n)^(nt)

Where:
- A is the future value of the investment/loan, including
interest
- P is the principal amount (initial investment/loan)
- r is the annual interest rate (expressed as a decimal)
- n is the number of times that interest is compounded per
year
- t is the number of years the money is invested/borrowed
for
Example:
Let's say you have $1,000 to invest in a savings account
that offers an annual interest rate of 5%. The interest is
compounded semi-annually (n = 2), and you plan to keep
the money invested for 3 years (t = 3).

Using the compound interest formula:

A = 1000(1 + 0.05/2)^(2*3)
A = 1000(1.025)^6
A ≈ $1157.63

So, after 3 years, your initial investment of $1,000 would

grow to approximately $1,157.63 when compounded
semi-annually at an interest rate of 5%.

Terms used:
- Principal: The initial amount of money invested or
borrowed.
- Interest: The amount of money earned or charged for the
use of the principal amount.
- Annual interest rate: The percentage rate at which
interest is earned or charged on an annual basis.
- Compounding: The process of adding the accumulated
interest back to the principal amount, resulting in interest
being earned on the new total each compounding period.
- Number of times compounded per year: The frequency
at which interest is compounded within a year (e.g.,
annually, semi-annually, quarterly, monthly, etc.).
- Time: The duration for which the money is invested or
borrowed, usually expressed in years.