Sample

Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding.

The compounding usually happens with some frequency (yearly, half-yearly, quarterly, monthly, daily, etc.) Usually banks define nominal interest rate (f.e. 12%) and frequency of compounding (f.e. monthly).

,

where

S - balance

P - principal

j - nominal interest rate (fraction of 1)

m - compounding frequency (number of compounding periods per year)

n - term (years)

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