Subtract the initial balanceįrom the result if you want to see only the interest earned. Next, raise the result to the power of the number of compounds per year multiplied by the number of years. Start by multiply your initial balance by one plus the annual interest rate (expressed as a decimal) divided by the number of compounds per year.
How to calculate compound interest using the formula Let's take a look at how we put these into our formula. In order to use the compound interest formula you will require specific values for your initial balance (principal), annual interest rate (expressed as a decimal), the number of compounds per year and the number of n = number of times interest is compounded per year.A = future value of the investment/loan.
Annual compounding (1x compound per year)Ĭalculate principal ( P) based upon future value
