Compound interest:
In compound interest, the interest earned over a period is added over to the existing principal after every compounding period. So, the principal and the interest over a period changes after every compounding period. [In simple words, we can say that there will be interest on interest.]
- The amount to be paid if money is borrowed at compound interest for N number of years is given as follows:
Note:
If the compounding period is not annual, then the rate of interest is divided in accordance with the compounding period. For example:
- If the interest is compounded half yearly or semi-annually, then the amount can be written as follows:
And if it is a leap year, then the amount can be written as follows:
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