Science, Tech, Math Math Compound Interest Formula Tutorial and Worksheet for Teaching Yourself Share Flipboard Email Print Don Bishop / Photodisc / Getty Images Math Math Formulas & Math Tables Basics Tutorials & Courses Arithmetic Geometry Pre Algebra & Algebra Statistics Exponential Decay Functions Worksheets by Grade Resources View More by Deb Russell Deb Russell is a school principal who has taught mathematics at all levels. She is also a freelance writer with more than 14 years of experience. Updated January 27, 2019 There are two types of interest, simple and compound. Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Learn more about compound interest, the math formula for calculating it on your own, and how a worksheet can help you practice the concept. More About What Compound Interest Is Compound interest is the interest you earn each year that is added to your principal, so that the balance doesn't merely grow, it grows at an increasing rate. It is one of the most useful concepts in finance. It is the basis of everything from developing a personal savings plan to banking on the long-term growth of the stock market. Compound interest accounts for the effects of inflation, and the importance of paying down your debt. Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount. For example, if you got 15 percent interest on your $1000 investment the first year and you reinvested the money back into the original investment, then in the second year, you would get 15 percent interest on $1000 and the $150 I reinvested. Over time, compound interest will make much more money than simple interest. Or, it will cost you much more on a loan. Computing Compound Interest Today, online calculators can do the computational work for you. But, if you do not have access to a computer, the formula is pretty straightforward. Use the following formula used to calculate compound interest: Formula M = P( 1 + i )n M Final amount including the principal P The principal amount i The rate of interest per year n The number of years invested Applying the Formula For example, let's say that you have $1000 to invest for three years at a 5 percent compound interest rate. Your $1000 would grow to be $1157.62 after three years. Here's how you would get that answer using the formula and applying it to the known variables: M = 1000 (1 + 0.05)3 = $1157.62 Compound Interest Worksheet Are you ready to try a few on your own? The following worksheet contains 10 questions on compound interest with solutions. Once you have a clear understanding of compound interest, go ahead and let the calculator do the work for you. History Compound interest was once regarded as excessive and immoral when applied to monetary loans. It was severely condemned by Roman law and the common laws of many other countries. The earliest example of a compound interest table dates back to a merchant in Florence, Italy, Francesco Balducci Pegolotti, who had a table in his book "Practica della Mercatura" in 1340. The table gives the interest on 100 lire, for rates from 1 to 8 percent for up to 20 years. Luca Pacioli, also known as the "Father of Accounting and Bookkeeping," was a Franciscan friar and collaborator with Leonardo DaVinci. His book "Summa de Arithmetica" in 1494 featured the rule for doubling an investment over time with compound interest. Continue Reading What Is Compound Interest? Formula, Definition and Examples What Types of Interest Rates Exist? Practice Applying Compound Interest Formulas With These Word Problems Use Simple Debt Amortization To Calculate Loan Payments How to Use the Simple Interest Formula How You Can Make a Partial Payment on an Interest Loan Practice Calculating Simple Interest With Free Worksheets Mind-Blowing Examples of Compound Adjectives How to Find the Molecular Mass of a Compound What to Know About Business Math Practice Predicting Formulas of Compounds with Polyatomic Ions What Are Compound Nouns in English? Real vs. Nominal Interest Rates – What's Better? Photo Gallery of Chemical Samples How to Calculate Mass Percent in Chemistry What Is a Compound-Complex Sentence?