Compound Interest Formula
The formula to calculate the Compound Interest is:
\[
FV = P \cdot \left(1 + \frac{r}{m}\right)^{m \cdot t}
\]
where:
- \(FV\) - Future Value of the investment
- \(P\) - Initial balance (the value of the investment)
- \(r\) - Annual interest rate (in decimal)
- \(m\) - Number of times the interest is compounded per year
- \(t\) - Number of years the money is invested for
Example Calculation
Let's calculate the compound interest for an investment with the following details:
- Initial Balance: $1,000
- Annual Interest Rate: 5%
- Times Compounded per Year: 4
- Number of Years: 10
Using the formula:
\[
FV = 1000 \cdot \left(1 + \frac{0.05}{4}\right)^{4 \cdot 10} \approx 1647.01
\]
