Sangeetha Pulapaka
0

STEP 1 : Recall what is principal amount

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STEP 2: Recall what is simple interest

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Compound interest is calculated based on the principal, interest rate (APR or annual percentage rate), and the time involved:



P is the principal (the initial amount you borrow or deposit)


r is the annual rate of interest (percentage)


n is the number of years the amount is deposited or borrowed for.


A is the amount of money accumulated after n years, including interest.


When the interest is compounded once a year:


A = P(1 + r)^{n}


However, if you borrow for 5 years the formula will look like:


A = P(1 + r)^{5}


This formula applies to both money invested and money borrowed.