Interest is Compounded Annually

This study describes the aspect of compound interest and its annual form. This is the most important part of this study and it describes the formula of Annual Compound Interest. There can be monthly CI, quarterly CI, half-yearly CI, and also annual CI. This is the important part of this study and it also defines the compound annual growth rate and its formula. Mathematics of compounding is an important factor that the study is going to describe and also presents the disadvantages of CI.    

Compound Interest

Compound interest is considered to be the interest that can be earned on interest and basic math can illustrate it. Compound interest can also be called the interest on interest is calculated by the formula of this interest. The formula of compound interest is:

A = P (1 + r/n) (nt)

In this field P means the principal balance, r is considered to be the rate of interest, t is the number of times, and n is considered to be the time of interest that is compounded per time. This is the particular formula that helps in the calculation of compound interest. 

Annual compound interest formula

Compound interest is the interest that is calculated based on principal and the interest is earned previously. It is considered to be the process where interest is earned previously, and it is called the interest on interest. It can be compounded monthly, quarterly, half-yearly, as well as yearly. The formula of annual compound interest is:

P (1+r)t – P  

At an interest rate of 10%, the lender can get 500 extra as interest at the end of the first year. In this field, the principal amount for the 2nd year will be 5000+500 = 5500.

Compound annual growth rate and its formula

Compound Annual Growth Rate can be said as CAGR and it defines a particular formula. The formula is:

CAGR = (Vfinal/Vbegin) 1/t -1

In this field, CAGR means compound annual growth rate, Begin is the beginning value, Vfinal is the final value, and t here reflects a time in years. The compound annual growth rate can be calculated by dividing the value of an investment by the end of time. It also added value at the very beginning of the time. The result has been raised to an exponent and it is divided by the number of years. The answer can be converted into a percentage by multiplying it by 100.      

Mathematics of compounding

In this field of mathematics, compounding means calculating interest on both the amount borrowed from previous interest. It can be defined as the work out of interest for the first period, and also added to the total, and after that, the calculation is done for the next period. This particular aspect of the study is known as the mathematics of compounding. Mathematics of compounding gives the description of the different factors such as annual compounding, semi-annual compounding, and quarterly compounding. These factors give a clear idea about the compounding of mathematics. In this field, the future values can be seen as greater than one year.      

Who can benefit from Compound interest?

Compound interest is considered to be the most effective tool in the mathematical field for the accumulation of wealth. This tool has been used for making money and it is helpful for lenders, merchants, as well as other entrepreneurs for years. The investors get rewarded through compound interest and it can be seen that Banks get benefit from compound interest during the time of lending money. Compound interest in this field is also beneficial for depositors for bank accounts, other assets, or bonds. More profit can get through compound interest and the benefit can get to everyone.    

Disadvantages of compound interest

Like many advantages of it, Compound Interest also has many disadvantages. It has the disadvantage of benefiting both customers and financial institutions. This particular aspect can be used by credit card companies and by landlords during the time of credit card debt and school loans. Some of the disadvantages are described in bullets-

• It can grow out of control quickly
• It is always calculated prior to make a payment
• In case of late payment, the rate of return may fall

Therefore, it can be said that compound interest has both advantages and disadvantages in the mathematical field.  

Conclusion

This is the field of the study that describes the act of compound interest and describes the concept of annual compound interest and its formula. Another important part of this study is the compound annual growth rate and the formula of it and it presents the concept of CAGR. This matter is very important in this field and the beneficial part of it is most interesting.