Compound Interest

If the interest is charges more than once during the period and the interest is reinvested , we need to compound the interest.
Compound interest is paid on the original principal and accumulated part of interest.
P = Principal ( Initial amount you borrowed or deposit.)
r = Annual rate of interest (per cent)
n = Number of year the amount of deposit.
A = Amount of money accumulated after n year including interest.
When interest is compound once in a year for n years
             A=P(1+r)^n
if you borrow for 5 years the formula is
            A=P(1+r)^5
Annual Compounding = P(1+r)
Quarterly Compounding = P(1+r/4)^4
Monthly Compounding = P(1+r/12)^12

The basic formula is
     
    P=A(1+r/n)^nt
where P = the principal
          A = the amount deposit
          r = the rate(expressed as fraction, e.g. 6% = 0.06)
          n = number of times per year that interest compounded
          t = number of year invested
Special Note: When interest is compound continually (in the other words, when n approaches infinity) the compound interest equation takes the form P= Ae^rt where e is approx. 2.71828
The Rule of 72: Allow you to determine the no. of years before your money doubles whether in debt or investment. Divide the number 72 by percentage rate you are paying on your debt( or earning on your investment.)
Illustration:
Jahangir has one saving account with interest rate of 3.3%, and one money market accountwith interest rate of 5.1%, in bank. if he deposit rs. 1,200 to the saving account and Rs. 1,800 to the money market account, how much money will he have after 6 years ?
Answer:  Saving account:
P = Rs. 1,200
r = 3.3%
t = 6
A = P*(1+rt)
    = 1,200(1+3.3%*6)
    = 1,200(1+0.198)
    = Rs. 1,437.60
Money market account:
P = Rs. 1,800
r = 5.1%
t = 6
A = P(1+rt)
A = 1,800[1+(5.1*6/100)]
    = Rs. 2,350.80
Total amount= Rs. 1,437.60+Rs. 2,350.80
                    = Rs. 3,788.40