Introduction: A fixed period, such as annual, half year or quarter, is decided to repay the borrowed money, the interest after this period is included in the principal and the compounded money becomes principal for the next period. This action is repeated for each period. The difference between compounded Money and Principal in the end is called the compound interest.
Formula with solved Examples
If the principal = P, rate = r% yearly, time = t year and compounded Amount A, then
Note: If the rate of interest is quarterly, half yearly and ninth, then in the one year, the number of quarters, half-yearly and nine-month divides into the annual rate, and multiplied by the same number in time.
That is, when interest imposed quarterly, then rate becomes one-forth and time becomes four times. Similarly, when interest is charged half year then the rate is half and time doubles. As interest is paid half-yearly.
Tricks with Trickily Solved Examples