How To Calculate Compound Interest?

Compound interest involves adding the amount of interest earned on the principal amount back to the principal for subsequent interest calculations. The information that is needed to calculate your compound interest is the principal interest, the rate of interest and the term of the loan. The formula for compound interest is FV=PV (1+i)^n. Where FV is the future value of the investment, PV is the Present value or the amount invested, "I" is the rate of interest and "n" is the term or period of the loan. Complications arise if the interest rate is variable and if the interest rate is compounded more than once a year.

The amount of interest charged can vary greatly based on weather the amount is being charged annually or monthly. A five percent monthly compounding rate of interest can result in an interest earning which is far greater than a sixty per cent interest charge annually as it can work out to around a hundred percent annual interest rate.

It is a bit difficult to calculate compound interest that calculating simple interest. In compound interest the amount is being added and then the added amount becomes the principal for the next year if you are adding it annually.
      
To calculate it, you are requited to use a formula so that your task becomes easier. The formula is PV (1+i) ⁿ- PV. In the above mentioned formula PV is the principal value and 'i' describes the rate of interest and 'n' is the number of years for which you intend to calculate the compound interest. While calculating it, you have to take care of what period the interest is being added. It can be annually, monthly, weekly or sometimes even for days. So you have to calculate the interest in accordance with that period.

Just received a new contract based on compound interest. Here are my numbers:

Yearly salary-59,109

2% general interest rate, effective July 13, 2006.

5% general interest rate compounded, effective February 13, 2007

general increases shall also be applied to additions-to-gross

Interest for 6mos at 3,94 % on $50,000.00 compounded daily