Explain compounded interest

[jgoodman]

You deposit $1000 in a savings account that pays 9 percent interest compounded annually. How much will your account be worth in 6 years?

[Clanad]

Here's a calculator...

http://www.zenithbank.com/compoundcalc.cfm

[Buenchico]

Clanad has provided a perfectly good solution to your question if you only want a final figure - but I notice the word 'explain' in your question, so here goes:

At the end of Year 1, 9% interest is added to your investment, so it now increases to $1000 x 1.09 = �1090.

At the end of year 2, another 9% is added, so the investment is now worth $1090 x 1.09 = $1188.10

At the end of year 3, we'll have $1181.10 x 1.09 = $1295.03

At the end of Year 4: $1295.03 x 1.09 = $1141.58

At the end of Year 5: $1141.58 x 1.09 = $1538.62

At the end of Year 6: $1538.62 x 1.09 = $1677.10

Using a scientific calculator, the way to work it out would be to calculate 1.09 to the power of 6, and then multiply by the original investment of $1000.

Chris

[THECORBYLOON]

If you get compound interest you get interest on the original amount AND any subsequent interest. So instead of getting six lots of 9% interest which comes to $540 in the example, you get the $677.10 as calculated by Buenchico .

[Clanad]

Ever the instructor, Buenchico... a far better and concise description than I offered Thanks for taking the time for that!