Compound Interest and

Inflation
Dr. Adeel Nasir
Compound Interest
• Present value is the value of an investment today, right now.
• Money left in an investment usually grows over time.
• The amount in an investment at a specific future date is called the
future amount, compound amount, or future value.
• The future value depends not only on the amount initially invested, it
also depends on the following:
Use the simple interest formula I = PRT to calculate compound interest
Compounding period
• The compounding period is the time over which interest is calculated
and added to principal.
• It can be annually (once a year), semiannually (two times a year),
quarterly (four times a year), monthly (12 times a year)
• The number of compounding periods is the number of the
compounding periods per year
Compounding period
• The interest rate per compounding period is the interest rate applied
to each compounding period
• It is found by dividing the annual interest rate by the number of
compounding periods in a year.
Formulae of Compounding interest