Krish C. answered • 13d

Highly-Rated Mathematics Tutor

There are two ways you could answer that question:

**1. The Formulaic Method**

Compound Interest = (Initial Amount)*(1+ (Interest Rate/100))

**2. The Easy Method**

Compound Interest is named that way to signify that you are compounding or adding the interest earned every year to the initial amount.

What that means is,

If I put in $100 initially at a rate of 10% compounded annually, I would get 10% of 100 in the first year, which is $10.

Now, in the second year, my bank balance has increased to $110 because they gave me that 10$

So by the end of the second year, I would get another 10% of 110, which is $11.

This way, you can see that every year you are simply multiplying the rate by the previous year's balance.

To simplify, step 1 was 10% or 0.1*100, step 2 was 0.1*110 or 0.1*(0.1*100)

By multiplying the rate by the previous product, we get a simple formula as

Compound Interest = Initial Amount*Rate*Rate*Rate (multiply rate as many years they have mentioned)

For further details, message me. I'll teach you about compounding monthly and more.