Compound Interest
Compound Interest
Compound interest grows a sum geometrically because each period’s interest itself earns interest — the engine of long-term growth.
The future value is A = P·(1 + r)^n. where P is the principal, r the periodic rate and n the number of periods.
Inputs
P := 1000=1000
r := 0.05=0.05
n := 10=10
Apply the compound-interest formula.
A := P·(1 + r)^n=1628.89
Results
At 5% for ten years the sum grows by about 63%. The geometric growth means time matters more than rate over long horizons.
Assumptions & limitations
- Constant periodic rate.
- Interest compounded each period.
- No deposits or withdrawals.