Compound Interest

Topic

Compound interest

Instructions

Read Ch. 13 of Business Math.

Consider the following as you read and write a 200-word post:

• How to use Excel^® to evaluate future values, present values, rates, and time periods.
• Use Excel^® to convert quoted rate to effective rate.

Answer preview

Compound interest is much more complicated as compared to simple interest. While simple interest is simply calculated the principal by the interest and the number of periods (P × I × T), compound interest is calculated by multiplying the principal by the interest raised by the number of periods. The formula for compound interest is given by (P × ((1 + I)^^T-1). Compound interest rate usually results in higher costs of a loan or ineptest from an investment as compared to simple interest rates.

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