What is Compound Interest & Download Compound Interest Calculator

Com­pound inter­est is inter­est added to the prin­ci­pal of a deposit or loan so that the added inter­est also earns inter­est from then on. Inter­est cal­cu­lat­ed on the ini­tial prin­ci­pal and also on the accu­mu­lat­ed inter­est of pre­vi­ous peri­ods of a deposit or loan. Com­pound inter­est can be termed as inter­est on inter­est. The effec­tive rate of Inter­est at which the prin­ci­pal will earn depends on the fre­quen­cy of com­pound­ing; the high­er the num­ber of com­pound­ing peri­ods, the greater the effec­tive rate of Interest.

The for­mu­la for cal­cu­lat­ing com­pound inter­est is:

Com­pound Inter­est = Total amount of Prin­ci­pal and Inter­est in future (or Future Val­ue) less Prin­ci­pal amount at present (or Present Value)

Com­pound Inter­est = [P (1 + i)ⁿ] – P

Future Val­ue (FV) = [P (1 + i)ⁿ]

(Where P = Prin­ci­pal, i = nom­i­nal annu­al inter­est rate in per­cent­age terms, and n = num­ber of com­pound­ing periods.)

If the num­ber of com­pound­ing peri­ods is more than once a year, “i” and “n” must be adjust­ed accord­ing­ly. The “i” must be divid­ed by the num­ber of com­pound­ing peri­ods per year, and “n” is to be mul­ti­plied by the no of com­pound­ing in a year with the matu­ri­ty term.

Sim­i­lar­ly Present Val­ue of any amount cal­cu­lat­ed in Future val­ue can be cal­cu­lat­ed using the fol­low­ing Formula.

Present Val­ue (PV)= FV

                                    (1+i)ⁿ

(Where P = Prin­ci­pal, i = nom­i­nal annu­al inter­est rate in per­cent­age terms, and n = num­ber of com­pound­ing periods.)

If the num­ber of com­pound­ing peri­ods is more than once a year, “i” and “n” must be adjust­ed accord­ing­ly. The “i” must be divid­ed by the num­ber of com­pound­ing peri­ods per year, and “n” is to be mul­ti­plied by the no of com­pound­ing in a year with the matu­ri­ty term.

A Excel Util­i­ty for cal­cu­lat­ing Present & Future val­ue at Com­pound Rate of Inter­est is attached herewith.

Down­load Com­pound Inter­est Calculator