We can now input the variables for the formula to confirm that it does work as expected and calculates the correct amount of compound interest.įor this formula, we need to convert the rate, 4.00% into a decimal, which would be 0.04. n is the number of compounding periods per year.A is the amount of money after the compounding periods.The formula for calculating compound interest is: In this article, to keep things simple, we are using an annual compounding period of 39 years, but it could be monthly, weekly, daily, or even continuously compounding. The actual rate that $1,076 compounds at is dependent on the frequency of the compounding periods. If you're on this page, you probably already know what compound interest is and how a sum of money can grow at a faster rate each year, as the interest is added to the original principal amount and recalculated for each period.
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