+247 say you have $100 in the bank. the annual interest is, say, 3%. so 100+(0.03*100)=$103 after 1 year. 2 years:
103+(0.03*103)=106.09. in year 1 it increase by 3 and year 2 it increase by 3.09. year 3: 106.09(0.03*106.09)=109.2727
now it increase by 3.1827 . this is compound interest.
This is the compound interest formula:
FV = PV x [1 + R]^N, where FV=Future value, PV=Present value, R=Interest rate per period, N=Number of periods. R and N must match. In other words, If R is per month, then N must be in months. If R is per year, then N must be the number of years......and so on.
