What is Compound Interest
When the simple interest is calculated for one year and its amount is considered as principal for the next year and the process is repeated it is called that the interest is compounded annually. The difference between the Final amount and the initial principal is called compound interest.
Important Points
 Principal changes in case of compound interest.
 Interest is calculated on accrued interest also.
Formula for compound interest
Compound Interest = A − P
= P(1 + r/100) ^{t} − P
= P[(1 + r/100) ^{t} − 1]
Amount (A) = P(1 + r/100) ^{t}
Principal = P
r is rate and t is time
When rate differs for each successive fixed period
If rates are r _{1}%, r _{2}%, r _{3}%, ... then the amount is
A = P(1 + r _{1}/100)(1 + r _{2}/100) (1 + r _{3}/100) ...
Applications
When value of a certain quantity changes at a fixed rate every year the formula of compound interest is useful.Some examples are Population and depreciation in value of an article.
Population
Depreciation
