Compound Interest
Compound interest is a type of interest that is calculated on the initial principal and also on the accumulated interest of previous periods. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal and the interest of the previous period. This process is repeated for multiple periods, which results in the exponential growth of the initial principal. Compound interest is often referred to as the eighth wonder of the world, as it has the power to turn small amounts of money into large sums over time.
History of Compound Interest
The concept of compound interest dates back to the 17th century, when it was first introduced by Italian mathematician, Bonaventura Cavalieri. He was the first to recognize the power of compounding and the potential for exponential growth. Since then, the concept of compound interest has been used in many different areas, including banking, finance, and investments.
Comparison Table
| Type of Interest | Interest Rate | Time Period |
|---|---|---|
| Simple Interest | 5% | 1 Year |
| Compound Interest | 5% | 1 Year |
Summary
Compound interest is a type of interest that is calculated on the initial principal and also on the accumulated interest of previous periods. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal and the interest of the previous period. This process is repeated for multiple periods, which results in the exponential growth of the initial principal. For more information about compound interest, you can visit websites such as Investopedia, Bankrate, and The Balance.
See Also
- Simple Interest
- Annual Percentage Rate (APR)
- Annual Percentage Yield (APY)
- Compounding Frequency
- Interest Rate
- Compound Interest Calculator
- Time Value of Money
- Compound Interest Formula
- Compound Interest Rate
- Compound Interest Calculator
