Compound interest is calculated differently from simple interest bandar judi slot. For example, with a $4,000 deposit and an annual interest rate of 8 percent, the simple interest after four years would be $1,280. This is calculated by multiplying the principal (P) by the rate (R) and by the rate of time (T): 4,000 x 0.08 x 4 = 1,280.
Compound interest is calculated by applying the interest to the principal, as well as the accrued interest daftar judi slot, after each year. So after the first year, P x R x T = 320, so the new principal would be $4,320. At the end of the second year, P x R x T = $345.60, which is added to the old principal, creating a new principal of $4,665.50. At the end of the third year, P x R x T = $373.25, which added to the old principal is $5,038.85. Applying this math formula again at the end of the fourth year gives a new principal of $5,441.96, or with a total interest earned of $1,441.96. Compared to the simple interest, the compound interest is $161.96 more.
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The above math is just to help show the concept of compound interest. There is a formula that is much simpler than calculating for each year and adding on. This formula is, with P meaning present value, r meaning interest rate as a decimal, and t as the time period expressed as an exponent:
P x (1+r)t = Future value
This formula can also be used to work backwards. This is useful if you want to establish a goal to save a specific amount of money in a specific amount of time. In other words, if you know your future value (FV), and would like to figure out your present value, simply work the formula backwards, which looks like:
P = FV/(1+r)t
If you don’t want to do the math yourself, the U.S. Securities and Exchange Commission has a Compound Interest Calculator at investor.gov.