The Mathematical Principle of Compound Interest
Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
The Universal Compound Interest Formula
A = P(1 + r/n)^(nt)
Where:
- A: Future value of investment / loan
- P: Principal investment amount
- r: Annual nominal interest rate
- n: Compounding frequency per year
- t: Number of years
Frequently Asked Questions
What is the Rule of 72?
The Rule of 72 is a quick mental math shortcut: Divide 72 by your annual interest rate to estimate how many years it will take to double your money (e.g., at 8% return, 72 / 8 = 9 years).
