Compound interest is calculated by multiplying an interest rate by a principal amount.The principal amount increases each time interest is earned.The accumulated interest is added to the principal to become the new principal for the next period.

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This is the basic definition of compound interest, which describes how the growth of an investment or debt is influenced by interest that compounds over time. The formula for calculating compound interest takes into account the initial principal, the interest rate, the number of compounding periods, and the length of time over which the interest is compounded. As each interest payment is added to the principal, the amount of interest paid also grows, creating an accelerating effect that can result in substantial gains or losses over time.

Compound Interest Is Calculated by Multiplying an Interest Rate by a Principal