Finance
Compound Interest
Updated 2025-08-22
Definition
Interest calculated on both the principal and the accumulated interest from previous periods. The formula A = P(1 + r/n)^(nt) shows how principal P grows at annual rate r, compounded n times per year over t years. Compounding frequency matters: $10,000 at 6% compounded annually becomes $17,908 after 10 years; the same money compounded daily reaches $18,221. Albert Einstein reportedly called compound interest the eighth wonder of the world, and the math backs him up, a dollar invested at 10% doubles roughly every seven years, a rule of thumb known as the Rule of 72.
Primary source: SEC Investor.gov compound interest calculator
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