Compound Interest

In the compound interest, the interest generated each period are added to the principal for the calculation of interest for the following period. Its the most common in the financial system. Formula:

    \[ FV=PV.\left ( 1+i \right )^{n} \]


FV= future value;
PV= present value;
i= interest rate1
n= number of periods.

For example:

Whats the interest obtained in application of $100,00 at a compound rate of 5% per month during 10 months?

    \[ FV=100.(1+0,05)^{10}=162,89 \]

To know how much are you paying/obtaining during the period, just subtract the present value from the future value:

    \[ I=FV-PV \]

On HP12c:

PV = 100
i = 1,05
n = 10
FV = future value

so type:

100 CHS PV 1,05 i 10 n FV

  1. Always given in percentage (x/100) and at the same unit as the period. For exemple: if the period are on monthly basis, the interest rate need to be at monthly basis too. If the period are on anual basis, the interest rates needs to be in anual basis too. See also nominal interest rate and effective interest rate to learn how to convert anual interest rates to monthly interest rates and vice-versa.

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