Compound interest is a type of interest in which the amount of interest is added to the principal of the capital and in subsequent rounds, in addition to the principle of investment, interest is also accrued on the interest.
Compound interest can be thought of as "interest on interest" and allows a deposit or loan to grow at a higher rate than normal. Because at normal rates, interest or profit is calculated only on the principal amount of capital. The rate of compound interest depends on the periodicity of the compound. The greater the number of combined courses, the greater the compound interest.
Using the following formula, the compound interest can be calculated.
A = final amount
P = initial principal balance
r = interest rate
n = number of times interest applied per time period
t = number of time periods elapsed