To compound interest, you add the interest to the principal each year of the loan.
The following year, interest is paid on the total amount of principal and interest.
Together, they cited information from 12 references.
wiki How's Content Management Team carefully monitors the work from our editorial staff to ensure that each article meets our high quality standards. When you borrow money, you pay interest to the lender.
After three years year, he earns $2,442 in interest.
Imagine the kind of simple interest problems where different interest rates are given for different time periods.Interest may be computed as simple interest, which is calculated by multiplying the amount of money borrowed by the interest rate and the length of the loan.The mathematical equation for calculating simple interest is However, banks typically charge compound interest on loans.Read the problem and identify which of the two things' rates are being compared.If more than two rates are involved, draw additional rows as necessary. Label each row in the first column with the name of the things. If one speed is in miles per hour and another is in feet per second, pick which unit you want to work with and convert the other amount to use that unit.Then, you can plug those values into a formula to calculate the future value of the money.This article was co-authored by our trained team of editors and researchers who validated it for accuracy and comprehensiveness.You can calculate the future value of money in an investment or interest bearing account.First, find out the interest rate, the number of periods and whether the account earns simple or compound interest.First you figure out the Principal, then you find the interest rate and then find the Time someone gave you to pay back loaned or borrowed money.Formula: Simple Interest= Principal*Rate*Time Example: Principal-,000 Interest Rate- 6.25 simple interest- 6 years ,000 x .0625 x 6= 75!