Compound
Interest
The value of
an investment at the end of n time periods, the future value, having invested an initial amount, or
principal:
Examples
Invest £1,000 at
8% per annum compound: how much will it be worth after 1 year, 5 years?
After 1 year:
After 5 years:
Derive the
compound rate of increase given
the principal and the time invested
Example
I invested £350
12 years ago and now have £1,500: what rate of interest have I earned?
Presenting the
calculations in a step by step fashion, rather than in the form of the
equation, we have:
Alternatively,
the formula based version is:
To find the
principal, given the future value,
the interest rate and the time:
Example
This means that
if I invest £21,120.54 now, I will have £50,000 in 10 year’s time providing I
earn interest at the rate of 9% compound.
summary page ... or ... 
©
Duncan Williamson
August 2001