Business and Finance

How to Calculate Compound Interest on Investments

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Compound interest is the interest which is earned both on the original investment (the principal amount) and the total interest accumulated so far. Here are a few methods to calculate compound interest.

Method 1

This method is suitable for interests which are compounding annually or whose duration is just a few years. Suppose the annual compound interest rate is 7% (0.07) on a $1000 investment for 3 years. Then

Interest for first year: $1000 x 0.07 = $70, Total amount: $1070

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How to Calculate Simple Interest on Investments

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How to Calculate Simple Interest on Investments

Simple interest is the interest which is earned on the original investment (the principal amount) for a specific number of years. Here are a few methods to calculate simple interest.

Method 1

Suppose the annual interest rate is 6% (0.06) on a $1000 investment for 3 years. Then

Interest for each year: $1000 x 0.06 = $60

Interest for 3 years: $60 x 3 = $180

Total amount after 3 years: $1180

Method 2

Second method is to use the simple interest calculation formula:

A = P (1 + rt)

where

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