Equations · Finance and economics
Compound interest
What a sum grows to when interest is added n times a year and itself earns interest.
A = P(1 + r/n)^(nt)
Aethel says
A equals P times the quantity 1 plus r over n, to the power of n t
What it says
Each period the balance grows by the annual rate divided by the number of periods. Over t years that happens n times t times.
As compounding becomes continuous, the formula approaches P times e to the power of r t.
Symbol by symbol
| Symbol | Say it | Means |
|---|---|---|
| A | A | the final amount |
| P | P | the principal, the starting sum |
| r | r | the annual interest rate, as a decimal |
| n | n | compounding periods per year |
| t | t | the time in years |
Where you meet it
Personal finance, banking and corporate finance.
Questions
How do you say Compound interest out loud?
A = P(1 + r/n)^(nt) is read: “A equals P times the quantity 1 plus r over n, to the power of n t.” That is exactly what Aethel says when it meets the formula in a book.
What does A mean in Compound interest?
A (said “A”) is the final amount.
What does P mean in Compound interest?
P (said “P”) is the principal, the starting sum.
Can I listen to the equations in my own textbook like this?
Yes. Upload a PDF, EPUB or text file and Aethel reads it aloud with every equation spoken as maths, the way it reads this one, and highlights each sentence as it goes. You can start free.