How To Calculate Compound Interest?

Let us quickly understand what these various parameters imply.

P is the original investment or the principal Amount

A is the final amount or wealth including compound interest

R is the rate of interest or return payable

N is the number of times interest compounds, so for quarterly, N is 4

T is the total number of years tenure of the investment

Once you feed all these parameters, you can get the eventual compounded amount on your fingertips.

The compound interest concept is a progressive growth concept. For example, if you invest Rs.100,000 with an annual interest yield of 10% for 5 years, the returns for the first year will be 100,000 x 10/100 or Rs.10,000.

However, for the second year, the interest will be calculated on Rs.100,000 + Rs.10,000 or Rs.110,000. The interest will be Rs.11,000. For the third year, the amount of interest will be Rs.12,100.

What we have considered is a very simple and fundamental example. In reality these calculations can get quite complex and cannot be done manually. This requires the use of compound interest calculator for the purpose. These calculators help you to simulate your experiences into a clear cut model and estimate how much you need to invest and how much risk you need to take for a certain wealth target.