# Compound interest formula explained in detail

Learn and know what is compound interest formula which we will study in comparing quantities chapter which comes in class 8 mathematics.

Regarding interest we have two types; they are simple interest and compound interest. Both of these have lot of difference and both of these formulas are very important in comparing quantities chapter. Now we will learn the formula to find out the compound interest.

## What is interest in math?

In compound interest, first we will know what is interest? The extra money you are going to pay for the lender or bank because of using their money is called as interest. We can also say like this the money you are paying other than the original money is called as interest.

## What does compound interest means?

In compound interest, the principal won’t be stable i.e. its changes year to year throughout the loan period time. But in simple interest principal will be stable throughout the loan period time.

In compound interest, principal changes. How it changes we will see know. Let us think that loan time period is 3 years. The sum of principal and first year’s interest both will be added and this money (principal + interest of 1st year) will be treated as principal for second year. Sum of Second year principal and interest will be treated as principal for third year and so on.

## What is the compound interest formula?

In comparing quantities, we have a formula for calculating the value of compound interest.

C.I = Amount (A) – Principal (P)

We can find the amount by using this formula,

Amount = P (1 + $\frac { R }{ 100 }$  )n

Therefore, compound interest (C.I)  =P (1 + $\frac { R }{ 100 }$ )n – P = P ((1 + $\frac { R }{ 100 }$  )n – 1)

In the above compound interest formula, P represents Principal, R represents Rate of interest, n represents time period.