How to Calculate Compound Interest?

How do you calculate compound interest?

Compound Interest Calculation

The compound interest is calculated to determine the amount of interest the lender will earn from the borrower for the principal amount lend for a period of time.

Formula:
Compound Interest = Total Amount - Principal Amount

Step 1: To Find Total Amount
Total Amount = P ( 1 + ( R / 100 ) ) ⁿ
Where,
P - Principal Amount
R - Interest Rate in Percentage
n - Number of time period to pay back the money

Step 2: Now, let us try to find the compound interest for the below given problem.
Calculate the compound interest for the principal loan amount of Rs.72900 with an interest rate of 8% in 2 years.
Given,
Principal Loan Amount = Rs.72900
Rate of Interest = 8%
Number of Time Period = 2 Years.

First, Let us find the total amount
Total Amount = 72900 (1+(8/100))²
= 72900 x 1.1664
Total Amount = 85030.56

Step 3: To find the compound interest
Compound Interest = Total Amount - Principal Amount
Substituting the values in the above formula we get,
CI = 85030.56 - 72900
Compound Interest = 12130.56

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