Introduction
At the end of the first year (or any other fixed period), if the interest accrued is not paid to the moneylender but is added to the principal, then this amount becomes the principal for the next year (or any other fixed period) and so on. This process is repeated until the amount for the whole time is found. The difference between the final amount and the (original) principal is called compound interest.
Definition and Explanation
Interest: It is the additional money besides the original money paid by the borrower to the moneylender (bank, financial agency or individual)in lieu of the money used by him.
- Principal (P): The money borrowed (or the money lent)is called principal.
- Amount (A): The sum of the principal and the interest is called the amount. Thus, amount =principal + interest.
- Rate (R): It is the interest paid on ₹ 100 for a specified period.
- Time (n): It is the time for which the money is borrowed.
- Simple Interest: It is the interest calculated on the original money (principal)for any given time and rate.
Formula for Compound Interest
(i) Amount (A) = P()
