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Compound Interest Formula

Compound interest can be defined as “An interest of interest to the principal sum of a loan or deposit.” The concept of compound interest is the interest that adds back to the principal sum, so that interest is earned during the next compounding period.
The formula for the Compound Interest is,

\[\large Compound\;Interest=P\left ( 1+\frac{R}{100}\right)^{T} – P\]

Where,

P = Principal
R = Rate
T = Time

Compound Interest can also be called as Amount (A)

Solved Examples

Question 1: A sum of Rs. 50,000 is borrowed and the rate of interest is 10%. What is the compound interest for 5 years?

Solution:

$Compound\;Interest=P\left ( 1+\frac{R}{100}\right)^{T} – P$

Here, P = 50,000 ; R = 10% ; T = 5 years ; A=?

$=50000\left ( 1+\frac{10}{100}\right)^{5} – 50000$$=80525.50 – 50000$

Compound Interest = 30525.50

The compound interest for 5 years is Rs. 30525.50

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