Respuesta :
When interest on savings is calculated using both the initial principle and interest that has accumulated over time, it is referred to as compound interest. The starting principle amount is multiplied by both of these variables, and the annual interest rate is increased to the number of compound periods minus one. The resulting value is subsequently deducted from the loan's full initial principal amount.
What is compound interest:
Compound interest is interest that has been accrued over multiple periods; it increases at an ever-increasing rate. Although the total interest for the three years of the loan in the example above is $1,576.25, the amount of interest is not the same for each of the three years, as it would be with simple interest.
Interest may increase in value on a daily, weekly, monthly, annual, or other schedule. Conventional plans for compounding frequency are often used in investment products.
Compound interest is calculated by adding the initial principal and any interest already paid from prior periods. Compound interest has the ability to create "interest on interest." Compounding interest's frequency plan can be adjusted to be continuous, daily, or yearly. Compounding increases the rate of money growth.
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