Compound interest is the interest that the bank pays you on the principal plus on the interest that you earned the preceding year.
Compound interest can be calculated by adding the interest of the previous year to the principal. In compound interest, the previous year's interests are added to the original sum/principal.
For example
Question - What will be the compound interest on a sum of $100 at 10% per annum for 4 years?
Solution - Given -:
Principal = $100, Rate = 10%, Time = 4 years
Therefore, for 1 year - $100
2 year - $110 (100 x 1.1 = 110)
3 year - $121 (110 x 1.1 = 121)
4 year - $133.1 (121 x 1.1 = 133.1)
Here, we multiply with 1.1 using the rule of Percentage Change Graphic which means when increasing a number by a certain percentage add the percentage to 100% and divide by 100% .
Therefore, 10+100/100 = 1.1
Incase the interest was 20%, multiply by 1.2, 30% = 1.3, 40% = 1.4 and so on.
Therefore, Compound interest is the interest that the bank pays you on the principal plus on the interest that you earned the preceding year.
To learn more about compound interest, refer
https://brainly.com/question/24274034
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