Mastering Compound Interest: The 8th Wonder of the World

Compound interest is often referred to as the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it. ### How Compound Interest Works Unlike simple interest, which is calculated solely on the principal amount, compound interest is calculated on the principal PLUS the accumulated interest of previous periods. ### Formula $A = P(1 + r/n)^{nt}$ - **A** = final amount - **P** = principal balance - **r** = annual interest rate - **n** = number of compounding periods per year - **t** = time in years