Compound Interest in Mathematics

Compound interest is an interest that has been added to the base money at the end of each interest payment period which is then used as the basis for determining the interest rate in the next period.

For more details, please see the following illustration:
If X keeps the money in the bank then at the end of each period, the interest earned is not taken, then the interest will be together capital into new capital that will bloom in the next period. The interest earned is greater than the interest on the previous period. The process in the above illustration is called with compound interest.

Example of compound interest

Pajar saves money in the bank $1,000,000 and the bank gives 10% interest / year. If interest is never taken and considered no bank administration fee. Please Determine the amount of interest earned Pajar after the capital settles for 3 years!

Answer:
The end of the first year of interest earned (I) is:
I = interest x capital
I = 10% x $1,000,000
I = $100,000

Beginning of the second year, capital becomes (C2):
C2 = C + I
C2 = $1,000,000 + $100,000
C2 = $1,100,000

End of second year, interest earned (I2) =
B2 = i x C2
B2 = 10% x $1,100,000
B2 = $110,000

Beginning of the third year, capital becomes (C3):
C3 = C2 + B2
C3 = $1,100,000 + $110,000
C3 = $1,210,000

At the end of the third year, the interest earned becomes (I3):
B3 = i x C3
B3 = 10% x C3
B3 = 10% x $1,210,000
B3 = $121,000

So the amount of interest earned after settling for three years is 100,000 + $110,000 + $121,000 = $331,000.

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Referensi :

• To'Ali's book math group accounting and sales

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