Compound Interest Formula
Also known as: Future Value Formula, Compound Growth Formula
A = P \left(1 + \frac{r}{n}\right)^{nt}
A = P(1 + r/n)^(nt)What It Calculates
Calculates the future value of an investment or loan with compound interest — where interest earns interest on itself over time.
variables
| Symbol | Name | Description |
|---|---|---|
| A | Future Value | The amount of money accumulated after n years, including interest |
| P | Principal | The initial amount of money invested or borrowed |
| r | Annual Interest Rate | The annual interest rate as a decimal (e.g., 5% = 0.05) |
| n | Compounding Frequency | Number of times interest is compounded per year |
| t | Time | The number of years the money is invested or borrowed |
Derivation
Starting from simple interest for one period: after one compounding period, the balance is P(1 + r/n). After two periods, it becomes P(1 + r/n)². Generalizing to nt total periods gives the formula.
Worked Examples
1
r/n = 0.05/12 = 0.0041672
nt = 12 × 10 = 1203
(1 + 0.004167)^120 = 1.64704
A = 10000 × 1.6470 = $16,470.09Result: $16,470.09
Common Mistakes
Don't forget to convert the percentage rate to a decimal
Make sure n and t use consistent units (both yearly)
This formula assumes no additional deposits — use the annuity formula for regular contributions
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#interest#investment#savings#growth#time value of money