Compound Interest 2019-06-04 08:00:00

Compound Interest

Compound interest is “interest-on-interest”, or the ability of a financial instrument to generate earnings on its earnings. Compound interest, can be calculated using the formula FV = P*(1+R/N)^(N*T), where FV is the future value of the loan or investment, P is the initial principal amount, R is the annual interest rate, N represents the number of times interest is compounded per year, and T represents time in years.

For example, a $100 investment today with a 5.0% interest rate compounding annually for three years equals $115.76 ($100*(1+.05/1)^(1*3). Note that compound interest produces a higher end result than simple interest. Using the same example, a simple interest calculation would only result in a value of $115.00 ($100*(1+.05*3). This effect is also known as compounding, and the more frequent the rate of compounding, the greater the end result.


Download our guide to real estate investing

Another Way To Own Investment Properties

Learn new ways to use real estate to pursue your wealth goals.

By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received.